bighanno said:
Appreciate a couple of cents off count for little at our end, but they apply a tax on a tax, double dipping!!!
[post="122492"][/post]
My earlier post was referring to the post-GST tax cuts to petrol (I remembered this- everyone said it was pointless)
News; Opinion
Bowser Savings Make Economic Sense
Alan Kohler
823 words
6 March 2001
Australian Financial Review
51
English
Copyright of John Fairfax Group Pty Ltd
It takes a year for a rate cut to flow through to the economy, but a cut in petrol tax goes straight into everyone's pockets, argues Alan Kohler.
If it was a choice between a petrol tax cut and an interest rate cut, you would have to go for the petrol tax cut every time.
Thankfully the two are not mutually exclusive, and the Reserve Bank will still cut rates probably tomorrow despite last week's 1.5cents-a-litre, $700-million-a-year reduction in petrol excise.
John Howard's backdown on petrol prices was lousy politics (whispers have started about his leadership anyway) but pretty good economics.
Economic activity is slowing sharply, and GDP may well have shrunk in the December quarter as the first part of a recession. We will find out on Wednesday.
Monetary policy is not a very good way to stimulate a flagging economy. By definition almost half the population are savers and half are borrowers (with banks taking a cut on the way through), so while a lot of households and businesses will benefit from lower rates, their extra spending power is offset by the nation's savers having to tighten their belts.
What's more, it takes at least 12 months for the effect of a rate cut to flow through to the economy, yet the economy needs stimulating yesterday, not next year.
A cut in petrol excise, on the other hand, goes straight into everyone's pockets. Even people who don't drive get it filtered through the cost of transporting the products they buy. In purely economics terms, the only problem with last week's cut in petrol excise was that it wasn't big enough or soon enough.
John Howard and Peter Costello got the politics of petrol wrong because they have been well trained to worry about jeopardising interest rate cuts with loose fiscal policy. They held out against calls for lower petrol excise because surplus-obsessed Treasury officials and market economists were murmuring that if they were virtuous and strong on petrol, the financial markets and the Reserve Bank would reward them later.
They probably should have ignored them: the economy would be in better shape and they would have a better chance of winning the election. In fact, it wouldn't have been such a stupid idea for the Government to cut petrol excise by enough to actually crowd out further rate cuts, say 5cents or 10cents a litre.
I know this sounds like heresy, but interest rates are not especially high relative to other countries at the moment, and don't particularly need to be reduced. Petrol taxes, on the other hand, are definitely too high and should be cut both for equity and fiscal policy reasons.
But there are two big advantages that monetary policy has over fiscal policy: central bankers are more trustworthy than politicians, and it is much easier to take back a rate cut than a tax cut.
This really gets to the heart of why the conventional economic wisdom is that the petrol excise cut was a bad idea and that the Federal Budget in May needs to be tough to keep the interest rate cuts coming.
Fiscal policy is out of fashion and monetary policy is in, because there is a piece of paper that says the Treasurer does not tell the Governor of the Reserve Bank what to do, while no such document or convention exists about the Secretary to the Treasury.
The Reserve Bank Governor can be relied upon to protect the currency from vote-hungry politicians by putting up interest rates (although he is always more inclined to do that than to cut them). But if the Prime Minister decides to cut taxes to save his skin as Howard did last week then there is nothing the Secretary to the Treasury can do about it, and it is hard to put them up again.
As a result, markets hate tax cuts and applaud rate cuts. In economic terms it often should be the other way around, but politicians have so corrupted their standing among investors by always giving and hardly ever taking, that they are no longer trusted with the policy levers.
But that doesn't change the fact that the economy is screeching to a halt, and the monetary policy lever alone may take too long to work.
Last year's income tax cut was mostly saved because of uncertainty over the GST, and the net effect of the business tax changes has been a significant depressant on the economy. This means that out of all the tax reforms of the past 12 months, the petrol excise cut is the first bit of direct economic stimulus we have seen.
Only trouble is that it was a piddling 1.5cents a litre 75cents off the price of a tankful.
I was close- $1.4bn (back then) would have cut prices by 3c.
dreamboat said:
THe thing that gets me fired up, is that the price of Diesel is more than that of petrol. Assuming that the taxation figures given above are correct, then the govt is not making any more money out of it, so that must meant hat someone else is making a killing on it.... let me think.... who could that be?
Diesel is a cheaper product to make than petrol, with far less refining required, and while I don't drive a diesel anymore, the insidious nature of transport costs mean that we are all paying a premium for everything to cover that higher price.
The ACCC need to take a real good look into this.
dreamboat
[post="122614"][/post]
FNQ Bunyip said:
Thanks DB, thats just what I was thinking. Its been said its supply and demand more useing diesel now so more expencive . I was under the (false) impresion that if more were useing it, it should be cheeper still
Just another case of getting it in the rear by big business/gov.
:beer:
[post="122637"][/post]
Supply is determined by refinery capacity, which is low, due to the fuel shock of the eighties (fuel producers, understandably, are scared of another glut). Also, Australian oil is high in gas, but low in the higher octane hydrocarbons. Thus, we have to import light sweet crude from other countries to make up this shortfall. Maybe investment in biodeisel would help, plus going to nuclear power (to reduce demand, and make electricity cheaper)
Also, cutting fuel tax is against the Liberal Party's fiscal policy anyway. Their policies are based on-
1- keeping taxation as a percentage of GST steady or lower than before
2- cutting direct taxes (ie income tax) in favour of indirect (GST, fuel tax)
3- minimal interference with business.
Carried to its logical final point, it's called Neoliberalism, or 'The Washington Consensus', as it was known in the eighties.
