Monday, May 26, 2008

Petrol Plan Delays Action Until Next Year

While Brendan Nelson’s proposal to lop 5 cents a litre off the excise on petrol was a simplistic and populist idea, it is looking more and more attractive. As the cost of fuel continues to rise, families are struggling more to make ends meet. Some of them are going broke. In Sydney there has been a 10 per cent increase in the number of bankruptcies, and around 6 per cent in the rest of the state. That’s due to a combination of factors, but the petrol price spiral is a big part of it.

It appears that the government is at least hearing the message with its clarification of the planned tax system review. It has now been confirmed that one of the items the review will consider is the interaction of the GST with fuel excise and other taxes. It’s a strong hint that we might expect to see the GST levied on the excise on fuel will be cut. The excise is 38.14 cents per litre, so that means 3.814 cents off the price of fuel. That’s even less than the cut promised by Brendan Nelson. Even if it comes to pass, it looks like we will have to wait until the review is completed in eighteen months time.

Of course it would be even better if the GST was removed from petrol altogether, saving around 14 cents per litre. Or if the excise was also removed saving a total in excess of 50 cents a litre. But it is extremely unlikely that the government will contemplate giving up that much revenue.

In the mean time, it is expected that the new fuelwatch program will save around an average of 2 cents a litre, and the scrutiny of the Petrol Price Commissioner may prevent some of the more blatant profiteering. While that is obviously a small step in the right direction, it’s easy to see why Brendan Nelson’s approach of simply cutting the tax is so appealing. It could be done today, and it could also be expanded to become a program of progressive excise reductions each year to help cushion the future price increases.

Kevin Rudd has a choice now. He can stick to his guns, and nothing further will be done about petrol prices until the tax review hands in its report at the end of next year, or he can bite the bullet and make a decision now.

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