Written By: - Date published: 9:49 am, June 9th, 2008 - 92 comments
Categories: economy, tax -
Tags: peak oil, petrol price
We regularly hear calls (not backed by any major party, including National) for the taxes on petrol to be lowered or removed because the prices are so high. After all, every time the price goes up, the government gets more revenue, doesn’t it?
No, it doesn’t. Tax on petrol has two parts. There are four levies totalling 50 cents a litre that pay for roading and the health costs of crashs. These are fixed amounts; they do not change when the price of petrol changes. But higher prices means that people are buying fewer litres of petrol now, so the government collects less revenue from these levies. Then, there is GST. The amount of GST collected from fuel rises with the retail price but when people have to spend extra on fuel they don’t buy something else and the government doesn’t get GST that lost sale. Overall, the amount of GST collected does not change because of the price of fuel. Less excise revenue, same GST, and, don’t forget, the government needs to buy fuel for tens of thousands of vehicles too. Rising petrol prices cost the government.
If the government did cut fuel taxes, it would create a massive hole in the budget. Every cent (and then some) of tax collected on fuel goes into roading costs. That money has to come from somewhere. And the decrease in retail price would soon be eaten up by further rises in the cost of crude.
Petrol tax is not the problem. Too much demand for oil and not enough supply is the problem. Artificially and temporarily lowering the price of petrol by removing taxes would only distort a clear market signal. That signal is: reduce demand, there’s not much oil left. If we bury our heads in the sand, continue demanding more and more oil and moaning for tax decreases, we only hasten the day when supply begins to plummet.
Peak oil is coming and no tinkering with taxes is going to change that.
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Scoopit!
Ta HS, I’ll give it a try.
Billy: Like who? No proper rightie.
Ahh Billy – wake up and smell the hypocrisy. The international captains of banking and property are my faves – some links to get you started:
http://www.truthout.org/article/raising-taxes-bail-out-robert-rubin
http://www.informationclearinghouse.info/article19531.htm
http://www.informationclearinghouse.info/article19531.htm
http://www.truthout.org/article/low-income-renters-pay-housing-bailout
http://www.guardian.co.uk/business/2008/jun/02/globaleconomy.globalrecession
Cheers HS!
Wonder when the price of a bus ticket is going to go up…I take Dominion rd into town and there haven’t been any increases in the 5 months or so that i’ve been using it! Thanks ratepayers!
Steve- actually, when petrol prices go up, demand doesn’t fall immediately- partially because people still have empty tanks from using petrol beforehand, partially because it takes people a while to break mental inertia and examine if they want to be using petrol that expensive. Of course, that inexlasticisity is hardly enough to make a killing, especially as it’s probably not even enough to fund the extra development of public transport we’ll need soon.
Who said they were righties? Being a banker doesn’t automatically mean you are right wing. Requiring the state to subsidise your existence does automatcally make you a socialist.
These guys are just highly paid beneficiaries.
The governments take is 5 times higher than the petrol companies.
BP on their website claim an 8% margin which includes operating costs, retail and wholesale margin including income tax.
The breakdown on a litre is this;
International shipping 3%
Fuel company as above 8%
International cost of product 49%
TAXES 40%
LINK http://www.bp.com/home.do?categoryId=6747&contentId=7022908
CLICK ON THE facts about fuel pricing link.
So my claim that a 10 cent price rise equals 5 cents for the govt is wrong. It is only 4 cents for every 10.
Now I do not have a problem with the level of taxation as it stands. We have fairly cheap fuel here. One of the reasons for that is our trim petrol and the worst quality diesel sold anywhere on the planet.
However with everybody suffering the squeeze on pricing for everything it might not be a bad idea for the govt to consider a cap on taxation in the short term.
And the argument that we are using less fuel has not been born out with any evidence so far. Whilst some discretionary travel might now be lessened. The national trucking fleet will not be taking days off, and these increases in cost flow through the entire economy.
Isn’t the govt take already an absolute rather than fractional amount?
Not according to all the oil companies
The 40% figure appears to be calculated for the price of petrol and tax at the time. I think the figure they quote below, 50.53c/litre, is the actual amount that goes on tax – plus the GST that’s already discussed here.
I love the way oil companies play their violins so mournfully over the way so much of the cost of a litre of oil goes to ‘International cost of product’. Poor BP, having to give so much of the money they take of you at the pump away to… well… another one of their subsidiaries, who are making a freaking MINT in the current environment of speculation.
T-Rex. We have one refinery who processes all our petrol. Who delivers the fuel from singapore (where most of our fuel transits from)?
There is more than one fuel company and they all share the facilities.
The figures quoted on the BP site were from 14th march this year.
lets say 25 cents ago.. so around 1.80 per litre times 40 % equals 72 cents. that would be around 75 cents with a 25 cent increase since march.
I am opposed to taxing tax, but that is a whole other argument that would need to include council rates as well. An issue that neither the Red team or the Blue team seem to be much bothered about.
Requiring the state to subsidise your existence does automatcally make you a socialist.
These guys are just highly paid beneficiaries
You mean John Key is a beneficiary also?
Billy: Who said they were righties? Being a banker doesn’t automatically mean you are right wing.
Come on Billy, that’s weak, very weak. If the people running the world’s banking and property markets aren’t the essence of fight wing capitalism then I’m a small tree in Estonia.
Own up to it. Righties like to privatise profits and socialise losses. If this makes you uncomfortable then you might be ready to start exploring the implications of your right wing beliefs in more detail.
barnsleybill. how is the ‘taxing a tax’ argument anything other than a hollwo cliche? The money raised on taxes on rates and levies is spent on roads etc.
If you cut out those taxes, you have to find that money from somewhere else (ceterus paribas on the spending, that’s a whole other issue)
your comment about speculation was right on the money by the way.
Despite the human haters banging on about peak Oil and snails we have not got a problem with supply at the moment. The price rises are happening for two reason.
Gouging by oil states and the flight of cash from lending to oil speculating, this is one of the downsides of capitalism.
If things get much worse we will see a lot more effort go into finding oil outside the middle east. Most of the continental USA, Alaska and surrounding Oceans are off limits to prospecting due to some of the tightest environmental laws in the world. Watch those laws get changed when the bite really comes on. And it won’t matter whether you have an elephant or a donkey in the white house.
Steve, the taxing tax issue is a whole other discussion. I was not trying to divert the topic in any way. Start a new thread and I am happy to debate that issue. An issue that (as I said) neither left or right seem to want to discuss.
Every cent (and then some) of tax collected on fuel goes into roading costs.
Steve, do you have a link that references that? Because I know that 10 years ago that was definitely not the case – it was running at slightly less than 50% IIRC, with the remainder going into the Consolidated Fund. It was the major plank of NZF’s transport policy, to have every cent of petrol tax spent on roads, particularly accident “black spots”.
Successive governments of both stripes have been notorious for siphoning off (excuse the pun) fuel revenue into the general accounts, so if the position has changed in the last 10 years or so, I’m glad to hear it.
I think I recall Labour announcing that they would be putting it all into roading Rex (which is why I did not call this one out). But the contention that all tax and then some is spent on roading is (to use a standard term) pork pies. it would be nice to see some evidence of the totality being spent on roads though.. As opposed to coastal shipping!
barnsley
we don’t have trim petrol and the worst diesel wherever. Concentrate on facts not slogans.
We don’t have one refinery who processes all our petrol. It only does about 2/3s. We access additional fuel from a range of refineries – primarily singapore and Australia, but also elsewhere.
Oil states are as much subject to the market as any other participant. There’s no evidence they are gouging prices, especially when you then say there is no problem with supply.
No-one is forced to pay $135 a barrel. OPEC is no doubt enjoying the prices but I doubt they can increase output quickly to counter them. Nor can anyone else. Production projects have long time frames. Interestingly Venezuela has managed to drop its output by a 1/3 in recent years by renationalising its industry. A classic example of a peak in production being politicall not resource driven
The tax numbers are extremely easy to work out. Just go to the MED website. It is 50.539cpl plus the GST on the final price, so around 73cpl all up at $2/l
As well as speculation and supply problems, the price of oil is being driven upwards by the fact that it is mostly traded in a US dollar that is suffering from inflation.
http://cunningrealist.blogspot.com/2008/05/soylent-greenbacks.html
The US govt is at the same time increasing it’s strategic reserve, possibly in case the strait of Hormuz gets closed for some reason between now and January.
Bryan Spondre
Stats NZ has annual sales statistics on fuel. Sorry I no longer have the link but sales in the year to 31 Dec were at levels similar to 2003/4 from memory – ie they had dropped about 5%, though I recall thinking there was something funny in the numbers around “other” petroleum products which may have made the overall number misleading. Anyway, the drop was used by the PM as a reason to defer the ETS on fuel.
Own up to it. Righties like to privatise profits and socialise losses.
No. If you propose that the government needs to subsidise your business, by definition you are not really right wing.
The people you cite are not following any ideology, they are just beign opprtunistic.
very close to the 75 cent figure I offered. As we are paying 207 per litre up here in kerkeri I will stand by my “guess”.
My coments about where we source outr fuel from was to demonstarte that there are many companies involved and not just evrybodies favourite whipping boy BP.
The current oil price is more to do with the rush of money into oil futures than any supply issue insider.
Nobody is suggesting there are supply problems.
I thought his line of argument would have been mana from heaven for you lot?
Another reason to blame capitalism.
Oh and the 207 was yesterday, prior to any rises that may have happened today.
Billy. Opportunism is surely the heart of capitalism, wouldn’t you agree?
Noone has even mentioned the actual sensible economic reason behind hypertaxation on petrol, diesel etc.
The reason why we notice it [fuel price increases] more than some other countries is that our fuel excise is in fact, a lot lower than other countries. We have the fourth lowest excise in the OECD, after US, Australia, and Canada. In New Zealand, and in other European countries, taxes on petrol dramatically increased following the 1970s oil shocks. The hypertaxation, sometimes in the order of originally 300%, was a means to protect consumers from future oil shocks, i.e. in NZ, while the price of petrol has doubled, maybe slightly more, the price of a barrel of oil, has in fact multiplied 8x since 2000.
Cutting fuel excise would harm the economy in the event of future price rises, as the price of oil is more accurately reflected at the pumps. However, as taxes become a smaller proportion of the price of fuel, as has happened, then fuel prices will be less restricted by this maxim.
Billy. Opportunism is surely the heart of capitalism, wouldn’t you agree?
No.
I suspect you think this because you believe being right wing is about doing anything to get rich. There are many rich people who ascribe to no ideology, leaving them free to engage in the sort of essentially left wing activity r0b was complaining of.
So have I got this correct?
The assertion that govt tax take is not increasing as the retail price increases is crap.
Govt tax take is increasing and the effect of that “must not reduce tax’ mentality is hitting people with little or no disposable income much harder than people on higher incomes.
Burt, and that is the great irony of high taxation. it always causes pain from the bottom up.
Billy. Opportunism is surely the heart of capitalism, wouldn’t you agree?
Capitalism has a heart?
Barnsley, burt.
what are you talking about? The Govt tax take is not increasing because of higher fuel prices. The GST take is constant, just more of it is coming from fuel purchaces now rather than purchases of other things. The levies don’t change with price but price does lower demand (a small amount) meaning less is raised from the levies in total.
Yes, per litre of petrol the govt is getting more money now because it is getting more GST but that increase is wholly offset by less GST from the purchase of other products that comsumers can’t buy because they’ve spent the money on petrol.
There is no net increase in govt revenue resulting from oil prices, if anything it is hurting revenue.
Steve P.
So increasing taxation decreases tax revenue ? Didn’t Roger Douglas try to teach you socialist that many years ago?
Don’t be a moron burt.
Surely in a simplistic sense any NZ governments tax take is directly proportional to the total wages paid in an economy plus the privately paid for goods and services consumed – they’ll take more when the economy is booming and less while it is tanking.
sod
Without the rise of capitalism during the last century we would undoubtedly be in the cak don’t knock it
I suspect you think this because you believe being right wing is about doing anything to get rich. There are many rich people who ascribe to no ideology, leaving them free to engage in the sort of essentially left wing activity r0b was complaining of.
OK Billy, these people act right wing, they espouse right wing, they vote right wing, but they aren’t right wing because they take government handouts when it suits them. So for you being right wing is akin to a state of religious purity. If you’ve fallen from grace then by definition you weren’t really ever pure at all. I guess in NZ only you and Michele (bless ‘er) qualify?
National and Act take state funding, so I’m guessing, not right wing parties?
Sorry, no, such a position is just daft, the term has no meaning if it doesn’t identify those who run (almost all) big businesses. And they take public help hand over fist when is suits them. Start with http://en.wikipedia.org/wiki/Corporate_welfare and then google the phrase “corporate welfare”, and away you go.
Again Billy, it interests me that you are so disturbed by the reality of corporate welfare. There may be hope for you after all. Come over to the left Billy!
rOb
What dozy drivel.
Tell me this without these right wingers (whingers as you call them) driving business and profits in NZ would we have the current employment levels in NZ ….would we have the same tax take we now enjoy.
You can’t despise and berate these people on one hand without accepting that the economy and indeed the public services that NZ enjoys would be stuffed without them.
What dozy drivel.
Sorry HS, as usual you read what you want to read, not what I have written.
Tell me this without these right wingers (whingers as you call them)
Don’t recall ever saying such a thing.
You can’t despise and berate these people
I have done neither. I’m simply pointing out that they are keen to receive corporate welfare if they can. Privatise profits and socialise losses. It’s a perfectly rational strategy for profit maximisation. I have attached no moral judgement (yet!), as usual I’m just trying to establish the facts.
[Edit: beg pardon - I did call them "shameless" and "hypocritical" - which they are]
Anyway, got to go and help my local cell group plan the glorious revolution, so, later….