Following the release of a Commerce Commission draft report suggesting the retail fuel market in New Zealand is not competitive enough, the Government has come out swinging.
It is accusing fuel retailers of "fleecing" their customers.
The Prime Minister is reported as saying: "Our instinct was certainly that New Zealanders were being fleeced at the pump, now the Commerce Commission has confirmed that that is true."
"I can tell New Zealanders we cannot stand by as they are facing that pressure at the pump and while they are being fleeced."
The report is a long and detailed one and does seem to make the case this market may not be competitive enough.
But the Prime Minister should be careful about flashing the word 'fleecing" too aggressively.
That is because voters notice the fuel price at the pump.
And it is easy to compare pump prices weekly using the Government's own analysis as published by the Ministry of Business, Innovation & Employment.
Regular readers will know that we track this weekly release and chart the key components here.
And it clearly shows that from the time the current Government was elected, pump prices have risen 15.2% in almost two years, and far higher than the 3.6% rise in inflation in that time.
Petrol buyers know that the cost of fuel is made up of three essential components:
- the cost of crude oil
- the cost of importing, refining and distributing the product
- taxes imposed on ourselves as duties, levies, regional taxes and GST (with part of the GST being a tax-on-a-tax)
And we can track those changes over time, identifying the main drivers of that +15.2% rise.
Nationally, this is what the data shows:
| 25-Aug-17 | 9-Aug-19 | change | ||
| cents per litre | cents | % | ||
| Retail price, discounted | 185.65 | 213.95 | +28.30 | +15.2% |
| Crude oil in US dollars | 50.20 | 57.36 | +7.16 | +14.3% |
| Crude oil in NZ dollars | 69.14 | 88.28 | +19.15 | +27.7% |
| Import, refine, distribute | 25.81 | 20.51 | ( 5.31) | -20.6% |
| Government taxes | 90.70 | 105.16 | +14.46 | +15.9% |
The largest cost rise affecting the pump price is for crude oil. But that is not because of the international price, rather it is due to the fact that the exchange rate has moved significantly against us. In August 2017 NZ$1 was worth US72.6 cents. On August 9, 2019 it was down to just US65c. Clearly we need to spend more New Zealand dollars to buy the same volume of crude oil. No-one in New Zealand can really control the cost of crude oil, and international forces set our exchange rate.
The next largest rise is from taxes. This is something the Prime Minister can directly control. And Government actions have caused this to rise almost 16% over this period.
In the same period we have seen aggressive fuel discounting. It may well be the case that there was plenty of room to discount the product as the Commerce Commission suggests. But it has clearly been discounted over the two years. In spite of the rising costs, the retailers now take less than 10% of the pump price to import the product, refine it, distribute it and market it. And they make a profit doing so.
But you can't hide from the fact that this is the smallest component of the pump price.
The largest component, is the one controlled by the Government and is the one growing very much faster than inflation.
It is clearly wrong to conclude that the fuel retailers are 'fleecing' their customers. It is not 'fleecing' when they reduced the share of the pump price by 21%.
So what should we accuse those who have increased their take at the pump by 16%? Gouging?
The Commerce Commission seems to have done good work identifying some potential market issues.
But loose and inflammatory accusations made for cheap political points scoring undermines that work when it is clear to any motorist filling up at the pump that the sharp rise in prices has nothing to do with the fuel retailers, and all to do with the politician making the accusation.
If anything, by reducing their share of the pump price, those retailers gave the Government cover to raise taxes even more aggressively. They are certainly not getting any thanks from the prime suspect. Sadly, today's outburst fits the modern political strategy of accusing your opponent of your own flaws.
Back to the detail, we can extract the Auckland component from the national table above because they pay a regional fuel tax, and then also reveal the same data for the rest of New Zealand without Auckland, which at the moment is not paying any regional fuel taxes.
| Auckland | 25-Aug-17 | 9-Aug-19 | change | |
| cents per litre | cents | % | ||
| Retail price, discounted | 185.65 | 222.55 | +36.90 | +19.9% |
| Crude oil in US dollars | 50.20 | 57.36 | +7.16 | +14.3% |
| Crude oil in NZ dollars | 69.14 | 88.28 | +19.15 | +27.7% |
| Import, refine, distribute | 25.81 | 20.51 | ( 5.31) | -20.6% |
| Government taxes | 90.70 | 113.76 | +23.06 | +25.4% |
| Rest of New Zealand | 25-Aug-17 | 9-Aug-19 | change | |
| cents per litre | cents | % | ||
| Retail price, discounted | 185.65 | 209.32 | +23.68 | +12.8% |
| Crude oil in US dollars | 50.20 | 57.36 | +7.16 | +14.3% |
| Crude oil in NZ dollars | 69.14 | 88.28 | +19.15 | +27.7% |
| Import, refine, distribute | 25.81 | 20.51 | ( 5.31) | -20.6% |
| Government taxes | 90.70 | 100.53 | +9.83 | +10.8% |
147 Comments
Yep. She's smart in many ways, and the PM I'd rather have when TSHTF.
But she's on the wrong end of this - something Megan Woods should have been briefed on when they took over. We are now in uncharted territory, where the practice of ever-bigger bets on the future were expected to be underwritten by ever-more energy (to do the ever-more work) being available. Now, the Govt, along with everyone else, is stuck trying to value something that is in/un-valuable.
Taxing energy is the best way to relate social project underwriting, to something real, though. Let's not forget that.
Anyone who thinks economic training is useful at this stage in global affairs, is a little behind, cognitively-speaking.
We chose to lie to ourselves, by believing economists and believing in 'GDP'. We did that while we extracted the best energy resources on the planet, in a never-to-be-repeated spree. And - as this and other related pieces make clear - we failed to measure properly. Therefore, I see no use for the echelon who led us, nor their shonky 'discipline'.
Thank you Kane ........... practically no one in her kitchen cabinet has any connection to the real world , they have never actually had to make a Dollar , they have resided in Monastic environments like the Beehive or academia and are clueless as to what is actually involved in running a business
For the record no great fan of BE, during his tenure as leader of the opposition, he was quite frankly inept and embarrassing. But to be fair he was brought up on the family farm, he could claim the hands on experience of that, he can shear a sheep after all, and know his way round the agriculture sector, like any farmer would need to.
@RickStrauss , you seem to forget that the OECD recognized Bill English as one of the best Finance Ministers in the entire bloc .
John Key's administration saw us the darlings of the post GFC era and the envy of everyone , and to be fair our taxes were the lowest in my working career , intrerest rates were the lowest in my lifetime , corporate profits were high as ever , the stock market boomed with the listing of power companies , and our housing wealth rose to unseen heights
Rock Star economy it was
Now we are a bunch of dope smoking losers running a Garage Band in Onehunga
If NZ had built more housing, especially more affordable modest size housing, because structural changes meant housing supply was more elastic then there wouldn't have been housing inflation. Therefore no distorted housing market, no housing inflation, no rent seeking behaviour and no rentier economy (maybe -there would still be all the other monopolies and cartels to bust -but you get the point).
@powerdownkiwi ........ who gives a >>>>>>>>> how many children Bill English has ?
My wife is one of six , her father was one of eleven , and my mother was one of 6
And Valerie Adams has an astonishing 19 siblings
If you are Catholic or Baptist and you follow the doctrine ............. no contraception and go forth and multiply , you will have many offspring , and that is Gods will
So unless you want to bring in more migrants , you should count yourself lucky there are some Kiwis who are able to shag and breed like rabbits
And where has the 'rock star' economy left us? Was the party going to keep on rolling to infinity if JK and BE continued doing whatever they were doing? Sprinkling BS and fairy dust on low interest rates, high immigration and debt creation and calling it a strong economy? Come on Boatman that's rubbish. We'd be in the same position now with the economy if National were still in power - its a cycle and the last National party were fortunate enough to be in power over the growth phase. JK knew it was over hence he jumped ship from government then sold his house as well!
So this hapless COL Government has finally woken up to the fact that an increase in the cost of fuel filters its way into absolutely everything from the tractor using diesel to plant potatoes to the diesel loco train carrying timber to the port , the truck delivering food delivered to Pak n save and the bus taking our kids to school , not to mention the cost of running a police car or ambulance .
And the cost to the tradesmen who go to site , or the worker driving to work
And the person who carries 100% of the burden of fuel tax increases is the end consumer .......... thats you and me and ever voter
So are you saying this government is to blame for high fuel prices?
Where do we get our tax from if as a society we are unwilling to tax the rich via a wealth tax? (i.e. comprehensive capital gains?).
Or do we just allow this form of capitalism to run where monopolies/oligopolies continue to rort the system while paying (competent..?) management excessive salaries? If there's no competetition, why do we even need management in those companies? It would make sense if there was competition to pay management well - but if there's not, aren't high wages just a deadweight loss - i.e. adds no value, increases cost. That perhaps is where we should be focusing our blame - and not on the government that is trying to get a clear picture of the issue.
When she says "... New Zealanders were being fleeced at the pump...", I was suggesting she is framing the situation to fit a class struggle where the petrol station owners had control of the means of production and were using this to exploit us.
David points out this is questionable as the government has a much larger cut of fuel prices than the fuel companies (who can only make profit on 10 to 20 percent of the price) but I completely disagree with him that Jacinda, the ex President of the International Union of Socialist Youth, has any populist leanings or desire to promote it.
Good article David. It is important that Jacinda is called to account; she is increasing becoming simply one who is seen as simply voicing shallow populist comments - a Prime Minister increasingly becoming a show-pony with no grunt.
Besides comments on the report on petrol prices today, she also took the view on TV this morning regarding landlords being in a power position over tenants - again a cheap reactionary populist statement. A landlord giving away considerable control of property worth $500,000 is not necessarily one of be in a position of power - in fact, a situation that many landlords feel very nervous about when it comes to risk of rent not being paid, unacceptable behaviours, and risk of damage.
So for today's score - bleeding-heart populist comments 2 vs. things implemented 0. Just another day.
By stating at the start of the year that this was the year of delivery; this was an admission that little had been achieved in the first fifteen months of power and little has been achieved in the nine months since.
Rants about KiwiBuild have come to nothing; changing gun legislation was both a no-brainer and simply passing legislation, which given the mood of the country ,would not be seriously contested. In the wider coalition, questions are stilled being asked about the effectiveness of the Shane Jones slush fund (other than for NZF election chances in Northland), and as far as the Greens go, simply using ministerial power to curtail oil and gas exploration, curtailing the future of the Waihi mine, and banning plastic bags, little has been achieved.
I was really looking forward to implementation of some good effective social policies but this has not been achieved to date.
Actually, landlords are parasitic upon tenant incomes, and the 'asset' wouldn't be worth so much if the landlords stood aside. Perhaps the tenant could buy the house instead - and probably care for it better out of pride and self-enhancement, comfort-wise.
Heck, perhaps landlords could do something constructive instead.
The problem is that the voting populace won't disadvantage their short-term selves - and she (as we saw with shelving the CGT) is stuck representing that. Which means that, ecologically, we're stuffed.
Didn't you know powerdown, landlords in NZ are absolute saints providing shelter to the great unwashed out of the pure goodness of their hearts. So what if they're a key driver in pushing house prices out of reach of the same people they're renting to? They maintain excellent accommodation that is warm, dry and definitely doesn't cause people to contract what we once thought of as third-world illnesses. Shame on this mean Labour Government for picking on landlords by making them do things they claim they do already. They deserve a desperate, captive market that will pay a third of their wages in perpetuity regardless of the condition of the property.
PowderdownKiwi, you have got no idea about what landlords do for tenants!
We personally provide quality accommodation to people that don’t either want to own or can not afford to own!
It is the tenants choice as to whether they want to rent or not, and that is determined by the choices that they make!
If you think it is all beer and skittles, then I suggest that you become a landlord and then come back and tell us that we are parasitic.
We personally maintain all properties to a excellent standard and while you are sitting on your butt, we are possibly fixing a water leak or blocked drain etc.
Landlords deserve every cent of profit that they receive as they are running a business.
I reiterate, have a crack yourself if you have the desire or ability!
The problem is I'm subsiding you through WFF and tax breaks (and you've just been thrown a share of another $54 Mill).. When you can operate without support from the tax payer I might believe you.
https://www.beehive.govt.nz/release/more-measures-help-those-facing-hom…
The AS does not go to landlords it goes straight into tenants bank accounts to spend as they please. And lets not forget it is also homeowners themselves receiving AS. I dont doubt that some have come to rely on it in order to pay rent but there are other tenants who comfortably paid rent before getting AS.
Hi Printer8, I agree with almost your entire post but I feel the need to ask you, what was it about changing 'gun legislation' that was a 'no brainer' for you? When the final bill is tallied and the legitimate law abiding firearms community have handed in approximately 10% of the targeted firearms (sorry for the pun) the taxpayer will have spent well over a billion dollars and the criminals will still have 100% of their illegal firearms. What will have been achieved except for a cheap-shot blow to the sporting and farming community and a brief blaze of glory on the world stage? My personal view as a sporting shooter is that the 'no-brainer' element will in fact be voted out at the next election.
Excellent analysis. PM Ardern's assertions originate in, and speak to, a visceral bias in her party and its green coat-tailers. In this echo chamber, oil companies - everyone knows - are thoroughly wicked, so they're absolutely certain to be fleecing us. Unlike local government, building products suppliers, the banks, the supermarkets, the national airline, et al.
I guess the PM wants to shift the blame prior to next year's election. She must be aware the NPV of forecast government liabilities are at risk of doubling once the RBNZ cuts the OCR another 25bps. Fiscal demands placed on the taxpayer will occur sooner rather than later. The calculated NPV of public government debt alone is not easy to dismiss while current yields discount magnitudes greater term coupon payments.
1) The government taxes on fuel are hypothecated and go straight back into the transport system. Its no different to what you would pay a private provider (+ their profit margin).
2) Its ComCom & the governments own fault. ComCom should have never allowed the Z fuel merger and the government should strengthen the competition laws. It takes 7 companies with equal market share to have a fully competitive market (HHI Index). Our fuel market is well short of that.
Yes, you are correct.
Also motorists are charged GST on the fuel excise, which amounts to a tax on a tax. Ideally the GST should be applied first and then the excise tax but this would complicate the GST system.
However one can also argue the GST covers some of cost of the externalities not priced or fully priced into transport
Fleeced Huh ?
Now my Nan, who lived so long ago she once told me she could remember the time of slavery , would suggest the Pot is pointing at the kettle on her AGA STOVE in her little cottage , suggesting it is the colour of a slave
The only people fleecing us are Taxinda ..........and her hell -bent -on -taxing- us- to - poverty , tax and spend Government .
Seems that they are more or less the same on both sides, regarding taxing fuel. https://www.newshub.co.nz/home/politics/2018/11/fact-check-who-taxed-yo…
By the way, name calling is the lowest level of argument according to this guy - https://bigthink.com/paul-ratner/how-to-disagree-well-7-of-the-best-and… - makes sense to me at least.
@mikekirk ........... dont kid yrself mate .
This Government could live within its means just like every one of us 5,0 million Kiwis
The funds taken in fuel levies is not in a dedicated fund , it simply goes into the coffers for general expenditure . And thats the problem
@Fritz ... all 3 of these fools look positively grim and rattled in the picture ............ and so they should !
They have created this mess , and using words like 'Fleece " to hammer the oil co's , when we know who is responsible for the mess , just makes it worse .
They think we are sheep and just accept being fleeced
we were getting fleeced at the pump before Aug 2017.These comparisons are pointless with regards to the fuel companies. Don't show the previous goverment tax increases and doesn't point out the tax increase in Auckland is also due to rates grab by Council rather than rates increase.
@dakiwikid .......... things were much better under John Key's administration , as even my eldest daughter , who thinks Jacinda is as saintly as Mother Theresa, will attest .
My daughter is spending more on fuel than ever before to get to Middlemore from the Shore ( dont even suggest using the 3 busses especially after dark ) .
In 24 months she has moved 4 times , and her weekly rent for her and 2 others has gone up from $490 to $630 ........on 2 occassions her Asian landlords decided to get out of the rental market as insulation was too expensive so the cancelled the leases and sold up .
Now her new Aussie resident Kiwi landlord has decided to take his capital to Aussie , the property is to be refurbed and sold ......so now she is looking for the 4th time for a place to rent .
David I don't think you read the Commerce Commission report. How does the fact that Auckland pays more fuel taxes (which obviously irks you) than Canterbury explain the fact that Canterbury has higher fuel retail prices? How also to explain the widening margins on higher octane fuels when taxes and other costs (distribution costs etc) have not changed?
Personally I would prefer that Canterbury had a regional fuel tax and lower prices due to more competition. That way the bigger tax take could be spent in Canterbury on transport infrastructure we need rather than excessive profits heading off elsewhere. Which by the way I consider is an anti-competitive fleecing.
Check this article out if you don't believe me. A couple of months ago Canterbury's fuel prices were 6 to 7 cents higher than Auckland's. The Commerce Commission work shows this sort of anti-competitive behaviour is continuing.
https://www.stuff.co.nz/national/114026106/canterbury-petrol-prices-hig…
Often it seems to take left wing political party's to instill market discipline because they understand the difference between governing for capitalists versus capitalism.
Also, having competition in a region as sparsely populated as Canterbury is not as easy as a more densely populated region (like Auckland). Just sit and perform some calculations. The overhead costs will need to be allocated between a much smaller number of customers in Canterbury compared to in Auckland.
The current governments increase in tax on petrol and diesel only screws working and lower middle class families (who have 'had it good' for too long!) The rest of us can afford newer electric cars and/or buy city apartments. We should commend the government really for pursuing a more brutal policy of imposing the burden of increased taxation on those with lower incomes instead of the rest of us. I'm belatedly becoming a hug fan of our Prime Minister, she is such a unique talent.
What did ComCiom think would be the outcome from the Z Energy / Caltex merger they approved leaving Z with over 50% market share.
Reduced competition equates to higher prices ! That's how market works !
A really dumb decision if I might say so.
Shouldn't overlook the 50 % increase in GST in recent years - 10 to 15 % !
Taking fuel tax off factory workers - and giving it to large land owners to plant forests to change the climate, isn't caring - it's deluded.
Shutting down the Lumsden birthing unit resulting in mothers having babies in cars isn't caring. Nor is having another 12k on the dole or white washing over #metoo in her own office.
Fail to see the caring high ground over some guy two PM's ago.
Yeah but there is "looking into it" and then there is "looking into it and then doing nothing", Labor is all about doing the latter. This whole petrol price thing started back in October last year, nearly a year ago, honestly does it take that long to breakdown the cost of 1 litre of fuel cost wise when you already know the exact amount of tax you taking from it ? Where does it go from here ? some form of Election promise by Labor to reduce the price of fuel ? its a joke.
Let’s face it NZ is a second world country masquerading as first world. Your problem can be seen here in many of the comments. The tone should be positive about growing the economy rather than bitching about your share of the little cake. If the PM gets re-elected it says only that she appeals to the common denominator. That common denominator is going backwards both economically, intellectually and socially. NZ great place to have a holiday home, wouldn’t want to pay tax or live there
Can I make a prediction.... the Commerce Commission will make some recommendations and not one thing will be done by this Government to enact them.
No, not because they fail to listen to any workforce/taskforce/commissions advice but because they will realise that anything that dramatically reduces the prices paid at the pump will affect their GST take and Robertson knows he needs every cent he can get.
There is no way they would do anything to lower their own take.
Correct. Take it back a focus-notch or two, and we can say that no government dare do anything to slow, repress or cease 'growth'.
So we can forget our current leadership structure (or at least, the incumbent crowd of all hues) in addressing sustainability.
All they're capable of, is growing unsustainability.
In summary the heat applied to the fuel retailers has helped keep prices down and let smaller companies like Waitomo fuel expand. Who would increase their margins while the spotlight (2 inquiries ) was on them.
Remember the report was commissioned because
1) "Based on MBIE data, retail petrol margins have increased by over 18 cents per litre between 2008 and 2017"
2) since 2008, New Zealand pre-tax premium petrol prices had soared from the "bottom third of OECD countries" to become the "most expensive".
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11…
Yes there is tax DC, but it's not the point of this investigation which is valid tax or no tax. The big energy companies will be toasting that you went into this distraction.
I think the interesting thing the investigation got to is the control that the big ones have over the supply. They work together and have 90% of the supply. It's not the competition on the local corner outlet. It's the wholesale supply we have been screwed on. Most of the media can't get their head around that one.
Interesting about Gull, having the best return on capital of the lot. Even with the lowest prices. It's because they bring in their own supplies.
All those wonderful operators like McKewons and Allied here in Otago have made cheaper fuel for us, but don't be deceived. Think how much better they could do if the single main supply they depend on was not completely controlled by the majors.
This has to be one of the most disingenuous arguments I have read. Semantics around the use of the word "fleecing" aside, are we seriously equating government taxation for roading infrastructure spending to the supernatural profits earned due to a lack of competition/oligopoly?
One of those actually benefits the users/payers of this good, the other only benefits those companies profits.
Are we seriously arguing that users paying higher prices due to monopolies is OK because government puts a tax on that same good (or increases said tax)? Got any more whataboutisms to go with that?
Good article David.
However, this is a political red herring from the Prime Minister.
Jacinda Adern should be focusing on sorting out the massive gang problems in this country, getting immigration numbers well down (under ~20,000 as was promised in the last election!), and China China China.
It would be fine is the fuel levy was actually a dedicated fund and we knew how much it had in the fund ............. but its not and the money is being used on other stuff ............ maybe even welfare payments to people too lazy to work and need the money to get a P fix ............
Wouldn't you just keep your mouth shut if you found out before hand that nearly half the petrol cost is tax instead of having a rant about us getting fleeced ? Seriously you would want to try and keep a lid on that can of worms. Forget about just the sock, isn't that her foot as well ?
Is this government really increasing taxes massively per our right wing 'whingers' comments?
https://tradingeconomics.com/new-zealand/government-revenues
There might be a few 'holes' in this analysis - but it wouldn't appear to me that there's been a massive jump or increase in rate of taxation since this government took over - but happy to be pointed to other data that would indicate this really is the 'tax and spend' government that its being labelled as. And if that data can't be procuded - then is there a lot of fake news around Labour taxing too much?
There are a couple of hucksters hereabouts, who put more effort in than you'd expect from just someone of a particular attitude.
And it's insidious and repetitive.
Maybe it's taking the place of Whaleoil - that well-balanced, insightful, researched, polite........
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