Action for Public Transport (N.S.W.) Inc.

Outraged motoring groups pointed out that fully half of the pump price of petrol was made up of government taxes. It was a scandal and an abomination. Governments were punishing the motorist by making their petrol expensive - at a whopping 90 cents a litre.

Many of us wish we could still be paying 90 cents a litre today. The trouble is we can't: not even if the entire 38 cents excise tax were to be abolished tomorrow. That's the first thing we have to understand about petrol prices: changing the amount of tax we pay won't stop the pump price going up for entirely different reasons.

Despite constant pressure for more spending on health, education and infrastructure, the air waves and politicians' mail boxes are constantly full of demands to cut tax. Petrol tax is no exception, but it is one of the last taxes we should be cutting.

What most people forget (or deliberately overlook) is that petrol tax is cut each and every year by inflation. The excise rate used to be increased each year in line with the Consumer Price Index (CPI) so its real value stayed the same compared to rising prices across the economy.

Without John Howard's abolition of this automatic increase in 2001, we'd now be paying 56 cents a litre in tax. As it is we pay 38 cents, plus around 12 cents in GST: that's already 10 per cent less tax than under the 1990s status quo. And by and large we're paying that discounted tax out of much higher incomes.

Further cuts to fuel excise would pour petrol (so to speak) on the inflation fire just as $31 billion of income tax cuts are about to flow into the economy. This would guarantee that the hawks on the Reserve Bank board keep bumping up interest rates to quell the fire.

Let's not forget who buys the most petrol: it's upper and middle income households. If petrol tax was cut, a tiny fraction of the benefit would go to the poorest families. Furthermore, government services that many low income families rely upon may have to be axed to pay for the tax cut.

It's not even certain that motorists would actually get the full benefit of an excise cut. A procession of inquiries has failed to dispel suspicions that petrol companies are taking motorists for a ride.

Even if the Government did cut fuel excise, who can guarantee that petrol companies would pass this on in full to consumers, now and into the future?

Economics 101

But even if we assume an excise cut is passed on in full, the problems don't stop there.

Cheaper petrol means more petrol burned - it's Economics 101. More petrol burned means more carbon dioxide, which means road transport maintains its dubious distinction as one of the largest and fastest growing sources of carbon pollution in Australia.

It's no coincidence that countries with higher petrol tax - which pretty much means all developed countries apart from climate pariahs like the USA - have much more efficient cars and make much more extensive use of public transport and bicycles. On the other hand, the average car in Australia uses just as much fuel now as it did in the 1950s, despite supposedly great leaps forward in technology.

Cheaper petrol and more petrol burned also means more petroleum imports. Australia used to produce about 80 per cent of its own oil. Thanks to growing demand and dwindling reserves, we'll soon be importing most of our needs. We need to be cutting oil consumption, not encouraging it with tax cuts.

At the end of the day, a 10 cent cut in fuel excise would only save the average motorist about 2 per cent of the cost of running a typical medium-sized car. As long as governments fail to provide high quality, reliable, integrated public transport then Australian families will face the cost of financing, registering, insuring, maintaining, repairing and fuelling at least one car per adult.

Cutting fuel tax will only have a marginal impact on this, but it will cost billions in lost taxation revenue.

Real investment in public transport by federal and state governments would allow families to give up at least one of their cars (if they want to) and to use the remaining cars less. The savings would go well beyond just a few cents per litre, and we'd also see lower carbon emissions, lower oil imports and less congestion.

The attitudes of our politicians to petrol tax and investment in public transport will therefore provide a good insight into whether they care more about the next election or the next generation. Daniel Bowen is president of the Public Transport Users Association, based in Victoria.

Daniel Bowen, President of the Public Transport Users Association, based in Victoria - http://www.ptua.org.au/.

7 February 2008.