The problem with petrol politics is that the numbers involved are simply enormous. A small cut in excise — that’ll will be a few billion thanks. A large cut in excise — pick a number and add nine zeros. The debate revolves around numbers so large that economists hide in the cupboard, muttering about the fiscal carnage that could be unleashed.
But there is one area of the fuel pricing melodrama that is at the opposite end of the spectrum — where the amounts involved are so small that we could call it microeconomics if the word hadn’t already been pinched.
We are talking, of course, about FuelWatch.
To get an idea of how the FuelWatch scheme might play out in practice nationally, we have our own natural experiment to look at in WA where FuelWatch has been running for eight years. Using data supplied by the Australia Automobile Association on average quarterly petrol prices in capital cities, we can plot the Perth price since 1980 against the combined average price of Melbourne, Sydney and Adelaide (Brisbane has been excluded because of the State government subsidy that drivers north of the Rio Tweed enjoy).
As we can see, the difference is minute between the two measures, with prices moving together through time, obviously being driven by far larger things than geography or programs like FuelWatch.
However, if we dig down a little deeper and plot the average cents per litre difference between Perth prices and the three state average over the same period, a slightly different picture emerges.
Throughout the 1980’s and 1990’s, petrol was an average of 1.4 cents per litre more expensive in Perth than the three state average (or 2.45%), whereas over the period since the introduction of FuelWatch, Perth has enjoyed a petrol price that is, on average, 0.2 cents per litre cheaper (or 0.11%) than the three state average.
While the cause and effect of FuelWatch in WA can be debated, the glorious savings for Sandgropers simply cannot be ignored. A typical Commodore driving family in Perth would have saved an average of 14.4 cents every time they filled the tank over the last 8 years compared to a working family in the nation’s south east.
That’s nearly a saving of $7.50 per year if the car gets a weekly fill! We’re talking serious kitchen table Working Family economics here.
If the ALP government wants to start spruiking the benefits of this one, they’ll need to get in touch with the North Korean Newsagency, because I just don’t think that Australian PR firms could deliver the necessary hype.
However, nervous economists can rejoice and leave their cupboards, for we need not be worried about those 10 figure sums with FuelWatch. We only have to worry about whether our software goes to enough decimal places to measure the benefits.
Richard – the percentage figure is the difference between the Perth price and the 3 state average as a %
It looks even worse if you compare just the 8 years before fuel watch and the 8 years after. The average price difference per litre between 1992-2000 was just 1.0 cent.
To do this properly you’d have to build a proper econometric model, control for competition effects that have come from WA’s increased population, oil price, transport costs etc etc, a whole raft of things – but the basic point here is that the sums are so small as to be meaningless.
I’m glad I subscribe to Crikey when I get article’s like this – brilliant stuff!
What’s wrong with this political picture at the moment? Rudd govt keep their election promises in their first budget with quite a serious argument being put they should break those promises for fear inflation. This would be political suicide. So now the first budget showing integrity to democratic platform has cramped their style on flexibility in petrol pricing issues. What would you prefer? Electoral honesty with the platform or pleaser who can’t say no destroying all confidence in government fiscal discipline? Better to burn off some polling fluff may be the best course?
If we see this kind of ranting about reducing petrol prices, what’s going to happen when the government does the opposite, and adds a new petrol tax, lets give it a random name, say, like ‘carbon tax’
Hilarious stuff. Our family happily traded our single V6 family vehicle for two small cars about 18 months ago, and we now spend less on petrol than we did when we had the big Commodore despite doing a lot more kilometres collectively. This sometimes means taking both cars if we’ve got the whole family going somewhere (which is pretty rare with 3 teenagers and one slightly younger, as they often do their own thing rather than come on family trips). But if I mention this anecdote to one of my fellow outer-suburbanites when they whinge about petrol costs, they are mortified at any suggestion they should not drive a V6 or V8 car. It seems many families would rather be unable to pay their food bills than trade in their big Aussie car for something sensible.