By David Chaston
As at last Friday, September 28, the average price at the pump for unleaded 91 petrol reached another record high* of $2.36/litre. After discounts which are now ubiquitous, that average was also a record high of $2.22/litre.
In Auckland, those prices were $2.50/l and $2.36/l, far and away record highs.
The reasons are all to do with the taxes we impose on ourselves.
It is a myth that a key driver is the crude oil price.
In fact, the data on crude oil prices is surprising. While we have record high pump prices, we are far, far from records on crude oil prices. As at the same day, crude oil cost US$79.42 per barrel. The record high was US$137.27/bbl on July 4, 2008. At that time, the equivalent NZ dollar price was $180.75, whereas today the local cost of crude oil is only NZ$119.40/bbl. So it is clear that crude oil prices are not behind the record high pump prices. And by implication, neither is the exchange rate. (NZ$1 = US66.51 cents on Friday, September 28, 2018 compared with NZ$1 = US75.90c on July 4, 2008).
The big mover is tax - what we impose on ourselves.
At current pump prices, we are paying more than 91c/l in volume taxes and GST. In Auckland it is $1.05/l on average. Back in 2008 when those crude oil prices spiked, the tax we paid at the pump was just 75.9c/l.
The Government coffers swell when the pump price is high due to GST. And remember, GST is also being paid on the volume taxes charged, so it's a tax on a tax.
Here is how taxes have changed over the past decade from that prior spike:
| July 2008 | September 2018 | change | |
| c/L | c/L | % | |
| Discounted price, national excl Akl | 209.9 | 222.3 | +5.9 |
| Discounted price, Auckland | 209.9 | 235.5 | +12.2 |
| Volume taxes, levies, made up of | |||
| - Land Transport Fund | 42.52 | 59.5 | +39.9 |
| - ACC | 9.34 | 6.0 | - 35.8 |
| - Monitoring levy | 0.025 | 0.3 | +1100 |
| - Local authority tax | 0.66 | 0.66 | 0 |
| -------- | -------- | -------- | |
| Total volume taxes, national | 52.6 | 66.5 | +26.5 |
| - Auckland tax | 0.0 | 10.0 | |
| -------- | -------- | -------- | |
| Total Auckland volume taxes | 52.6 | 76.5 | +45.4 |
| plus | |||
| GST (a value tax), national* | 23.3 | 29.6 | +27.0 |
| GST (a value tax), Auckland | 23.3 | 31.1 | +33.5 |
Remember, GST has risen in the period from 12.5% to 15%.
So, nationally we are paying about 6% more now than the previous record high price, and this represents about 12.4c more per litre. But volume taxes have risen by 13.9c/L and GST is up by 6.3c/L. The rise of competitive fuel discounting squares the circle.
Interestingly, the "oil companies" now take 51.1c/L to import, refine and distribute the product we use, the smallest part of the price, where crude oil represents 75.1c/L, and taxes represent 96.1c/L. Outside of Europe, New Zealand is the heaviest taxer of fuel according to International Energy Agency monitoring. The local fascination for such a regressive tax is hard to understand (other than it is easy for governments to collect, and easy for the 'blame' to be deflected to "international oil prices").
Oil and Petrol
Select chart tabs
* On an inflation-adjusted basis, 2018 prices are about 10% lower than 2008 prices, according to MBIE calculations.
59 Comments
yep - National has always got it - reward and enable your voters Labour penalizes them and makes them welfare dependent!
better off you are - least likely to effect you - and most likely to have company vehicle or own a company and have vehicle costs as a tax break!
Vote for Labour - get more benefits - few juicy pay rises - then realise they cancel each other out - but the new taxes oops sorry levies make you worse off again -- and then the lack of business confidence slows down the economy dries up investment and new jobs! Notice ACC increases down to cost of Pay Equity
the taxman taketh and then the taxman taketh away!
KP
If National had allowed the RBNZ to implement DTI measures on mortgages and our household debt hadn't ballooned as it has, then the RBNZ would still have the measure of raising interests as a tool to combat the weakening dollar that is causing this. Sadly National said 'no' so inflation at the pump is what we get until we can no longer 'look through' inflation.
The challenge we have is that the RBNZ is not independent of the government / any government if it still has to pay a dividend to the Crown accounts.... it is what it is, but it's not labour's doing. (NB and I'm a Thatcherite)
You do know Simon Bridges has already said National would not back these petrol taxes out, and that National's transport plan was going to require them to continue their increases in fuel tax too?
National's perpetuated subsidies and welfare too - including to rich old folk, property investors and companies. But hey...let's pretend that both NZ's major parties aren't now basically as socialist as each other.
@ Ex expat
I've voted National every election since 1988...but not the last one.
I consider myself apolitical - certainly not into the fan-boy (or girl) cults that seem to be on this page.
But all I saw was 9 years of wasted political capital...a big fat cynical zero IMO -
Simpy put the evidence does not lie, they are unemotional unlike the feelings or biases in us all.
The only time we can judge a parties performance is looking back and marking against the goals THEY set as their KPI's isn't it - in nationals case it was:
1. Make housing more affordable - In the words of homer Simpson - Duoh
2. Scrapping the insane working for families policy Labour brought in (Communism by stealth I think he termed it - whoops that didn't happen)
3. Wouldn't raise GST - oh dear, whoops...
4. Increase the export orientation of the economy - actually went from 30% of GDP to 27% over 9 years....
5. Close the wage gap with Australia - that didn't happen...in fact they then tried to turn our low wage economy into an opportunity (hey, deal with us cause we're cheap - great value proposition for as sustainable business model...)
The last performance reviews I did on staff wasn't for the year ahead....
And if this was the performance card of any of my team then they'd be on the way out.
So, that's the view of a pretty conservative 50 year old male, high income household, doing ok but very unhappy with the way the country was moving.
Care to pigeonhole that as some sort of leftie conspiracy??
PS/ At the end of this term (or next) I will use the same criteria to judge the current Govt and then make an informed decision accordingly
Boatman - yup, 9 years of missed opportunities and smug, aimless government under Smilin' John. Much like the 8 years of disaster under Bush that has led to the Decline & Fall of the US that we bear witness to today. Trump is just the icing on the cake that reflects the child-like mentality of the Repugs.
KP - in addition to the good rebuttal from Rick and others above I see you made a telling Freudian slip there - "National has always got it - reward and enable *your* voters...." meaning the Nats don't bother to advance the lives of people who don't always vote for them - creating the Haves and the Have Nots we see today.
Therefore it is valid that Labour takes a "hand up" approach to re-balance our society.
Unfortunately the oil price, having already doubled since last year is still no where near its top and being pegged to a US dollar that is strengthening because of FED tightening.... It's like deja vu to 2006-2008 again!
NZ dollar is only going one way while interest rates are kept low by the RBNZ so for a while things are likely to get a lot more expensive over the medium term.
Add to that more upcoming supply shocks to the oil market in the form of US sanctions on Iran, and supply disruptions in Venezuela and Libya. We could see Brent crude prices shoot up above $100 a barrel sooner than expected.
Another point of concern is the impact of higher fuel prices on a major export earner: tourism. Modest hikes in airfares have already begun but the bigger jumps are a while away as most airlines hedge their oil purchases months in advance.
https://www.radionz.co.nz/news/business/367355/headwinds-of-rising-fuel…
Plus the add ons it's closer to 10% of GDP.
'Domestic tourism expenditure increased 7.4 percent ($1.4 billion) to $20.2 billion. Tourism generated a direct contribution to GDP of $12.9 billion, or 5.6 percent of GDP. The indirect value added of industries supporting tourism generated an additional $9.8 billion for tourism, or 4.3 percent of GDP'.
At the peril of starting the controversial debate, I might mention that government's consolation to those grieving in Taranaki over the demise of oil and gas are investments from SJ's slush fund towards tourism development in the region. The government has pledged about $20m in tourism-related developments and upgrades while another 400k will be devoted to funding innovation.
So the government looks to boost a hydrocarbon-dependent industry to make up for the move to ban domestic hydrocarbon production. Paradox!
Did you guys not read the article? It's very clear.
The record price is NOT to do with crude oil costs. It states categorically that the crude oil price per barrell is far less than it was in 2008
It is NOT to do with the exchange rate. Again it is quite clear, the landed price in NZ dollars is currently far less than it was in 2008
It is certainly nothing to do with DTI mortgage tools. Amazing how some people think...
It is all about TAX TAX TAX
You cant blame Donald Trump !
The Northern Hemisphere is going into winter and it uses way more fuel than in summer .
Libyan production has been disrupted , Iraqi production is below capacity , Saudi is pumping less and OPEC members seem to be complying with the agreement of a few months ago .
The Kiwi$ in weaker ( in part due to the Fed ) and of course there are the taxes , which has nothing do do with Trump at all
Good stuff. The taxes should be higher to force these cars off the road and into public. The carbon rates are going off the scale and the world will soon be an overheated unliveable mess.
But watch. They grizzle and groan but even at these prices kiwis will drive like there is no tomorrow. Cars will still be one up, mummy will drive the darlings to school, and daddy will drive his big 6.
The disabled and the elderly may well have lost the ability to use their own energy to travel. However, there is a massive numeric of lethargic kiwis well within walking and cycling distance to work and most services..
Picking the odd outlier or exception doesn't invalidate the facts - most kiwis are just too tired and lazy.
Good luck to Landlords taking a bigger chunk of tenants income after rising insurance and said petrol increases. Another reason why speculators will be exiting in droves. Unless a diplomatic solution is found over the developing Iran situation, expect further increases and a painful fallout.
The local fascination for such a regressive tax is hard to understand (other than it is easy for governments to collect, and easy for the 'blame' to be deflected to "international oil prices").
Has it been demonstrated to be a regressive tax? I did see the analysis done by the NZ Initiative but wasn't all that convinced.
How is paying for roads any more regressive than paying for power or food? All fuel tax (other than GST) goes into building and maintaining roads and other transport. GST is merely a tax on road users paying to use the roads - just like power users pay GST when they use power and food eaters pay GST when they buy food. Would David feel better about it if the roads were privatised?
Fair enough. But both costs are associated with using the road, not money going into the general government kitty. I don’t expect a GST rebate from my power company for any emissions or ACC it pays. Transport is a service like any other - you should expect to pay the cost, and then you should expect to pay GST on top. Consider yourself lucky you don’t have to pay the full cost or pay for a return on investment.
Certainly a hard one to see a clear cut case for.
On one hand the working poor drive older less fuel efficient cars, and often have to commute further for work. But the flip side of the coin is that they aren't popping down to Pauanui for the weekend with the boat on the back of the SUV either.
This reminds me of the perversity of the poll tax in the UK. But in the opposite direction. The well healed in their country mansions paying little poll tax but reaping the benefits of their work place and the city that they travel into 5 days a week.
So in the case of a petrol tax here, the far dispersed low paid workers bear the brunt of maintaining not just the roads they have to drive to work, but also the the network that the well healed benefit from come the weekends when they get away.
Think of it like line network charges. We all pay a fixed fee regardless of the usage. The fixed fee goes towards simply having the line network exist for when we do want to use it. A petrol tax does not cover this.
And another perversity will be that it's the well off that will be first into new electric vehicles whilst the poorer won't be able to afford one for quite some time I'd imagine and it is they who will continue paying the petrol tax.
Well, consumption taxes with no discretionary exception (like GST and fuel tax) are regressive because those poorer pay a larger portion of their income compared to the rich. This is true even if they consume less units of fuel compared to the rich. So it really does not need analysis to prove that this tax is regressive. However, if we are talking about how much additional burden this tax is to people, then we will need a much more sophisticated model and a lot more data and a comprehensive analysis
Thanks. Yes, of course, the comparison to GST is valid. If I recall though, the argument NZ Initiative put forward was that the tax was not a proportional one (i.e., more regressive than GST) - in that lower income groups in AKL would indeed pay a higher proportion of the tax because they would consume more due to type of vehicle driven and mileages covered (if I recall their argument correctly). Effectively, they were saying that the low income community in AKL would be subsidising the wealthier in the community.
They suggested instead that the transport infrastructure would be better paid for through rates increases, I think.
David, I disagree that it is "a myth that a key driver [of pump prices] is crude oil price" or that "it is clear that crude oil prices are not behind the record high pump price".
I do agree that volume taxes, GST increases and oil company charges have increased over the last decade and are a big reason why today's pump prices are higher than in 2008 despite crude being significantly higher then.
But surely the cost of the raw material (crude) is an important driver in the pump price as well. Your own Akl U91 chart shows a steady increase in full pump price from end-June 2017 ($1.85) to end-Sept ($2.50). That mirrors the increase in crude prices over the same period - up from US$45 to US$80 (NZ$62 to NZ$120). Obviously our pump prices have not doubled the way that crude prices have because of the fixed taxes etc by volume, but the run-up in prices over the last 15 months does correlate strongly with elevated crude prices over the same period.
I also draw a different conclusion to the author from the same data. And we must weigh the tax increase with proportionality to the population increases, because more expenditure is required on roads as a result, and simultaneously, less revenue is raised by the Crown following the income tax cuts in that same time period.
The article seems quite overtly framed as 'tax is bad'. There is political bias here. I'd be grateful for a more balanced analysis, and no attempt seems to have been made to identify the correlation between global prices like you have done.
Simple solution for the high petrol price especially for those property investors: you have made stacks on capital gain over the last few years. Ditch your poncy BMW, Mercs, Audi and VW, buy a hybrid or a Mitsi Outlander PHEV (electric). If you really want to show off then buy a Tesla 100PD
Bring on the electric vehicles. Why wait for petrol to rise to $5 a litre? Build an LNG import facility so we can import natural gas from Aussie to make the electricity with. While you are at it, build a nationwide gas pipeline system so we can have warm homes too.
A bargain at 250m each. Something useful for Shane Jones to spend his money on:
https://www.theguardian.com/australia-news/2017/aug/10/its-absurd-new-g…
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.