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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