Political populism doesn’t necessarily head to bad economics, but this push to cut fuel prices by either cutting the excise or the GST does fit the “populism is bad economics” mould.
There’s no doubt that the petrol price is hurting, but the main reason it’s hurting so much is because households are squeezed by excessive debt. With debt repayments taking about 15 cents out of the average household disposable dollar, versus a mere five cents a few years ago, there’s just less room to cope with a cost jump like oil. But directly tackling the oil price by slicing off the tax levels has the feeling of King Canute commanding the tides to turn.
The bowser cost of petrol is also only about a third of the transportation costs alone involved in our use of oil. Virtually everything produced today has oil as a component in its production — even computer chips have materials made from oil. This tax cut would be a visible change while the dominant cost pressures would remain invisible, but far more potent.
Oil is running out. The advocates of what is known as “Peak Oil” have been making the case about oil running out for decades now. The wheel, so to speak, has finally turned in the direction they forecast long ago, and fiddling with tax rates won’t increase the amount of oil left in the ground, or the efficiency of its extraction.
Making petrol artificially cheaper now isn’t going to stop it running out — it might simply accelerate that trend.
The alternatives that can keep the gas guzzler as our main form of transportation just aren’t going to work out either. Oil shale was touted as an alternative, once petrol got expensive enough for its extraction to be commercially viable. But now it’s not greenhouse gas viable to do it.
We’ve also seen the impact of trying to grow our oil — ethanol production up, food prices up even more, and riots in starving populations around the world.
There is also a mass of speculation overlaid on top of this real supply driven dilemma. There’s a possibility that, if a serious economic downturn hits the USA and the rest of the OECD, that the oil price will collapse as speculators are forced to unwind their positions. How would this temporary palliative to oil consumers look then, especially if we undercut our tax base at a time when declining income tax revenues amplified the scale of government deficits?
Ultimately, this is a “chicken little” debate — politicians grabbing an easy option for a difficult problem, and running around in front of the cameras fast enough to look like they’re doing something significant. Addressing the challenges of moving to a non-oil dependent economy are a lot more difficult than cutting a few cents off the top of a tax.
Professor Steve Keen is the author of Debunking Economics.
Rudd signing Kyoto did not save a single molecule of CO2 from entering the atmosphere and in fact added to it because of signing for show overseas with the massive ministerial and support contingent flying. That was populist politics at its purist. Policies to encourage a decrease in fossil fuel dependence are required but far Rudd has only removed the rebate on solar power home conversions. Yes, Des the Rudd government (ones promising) is looking already like the “once promising”…. but hardly surprising.
Typical Australian public servant .Why not cut the excise out completely sack all his mates in the diesel rebate section we would all better off in no time flat we would have a surplus of 50 billion. Yesterday fuel in country Thailand not metro was one Australian dollar per litre
Akerman on Insiders last Sunday tried to argue with a graph that that oil output from Iraq was as high today as before the invasion, but The Independent in the Richard Farmer media summary same edition of my crikey ezine today states an expert with 3.5M barrels before down to 2M barrels today. Who is telling the truth, as if I really need to be told (!?). To quote the article: // “The oil economist Dr Mamdouh Salameh, who advises both the World Bank and the UN Industrial Development Organisation (Unido), told The Independent on Sunday …. // Dr Salameh, director of the UK-based Oil Market Consultancy Service, and an authority on Iraq’s oil, said it is the only one of the world’s biggest producing countries with enough reserves substantially to increase its flow. ….Production in eight of the others – the US, Canada, Iran, Indonesia, Russia, Britain, Norway and Mexico – has peaked, he says, while China and Saudia Arabia, the remaining two, are nearing the point at of decline. Before the war, Saddam Hussein’s regime pumped some 3.5 million barrels of oil a day, but this had now fallen to just two million barrels.//
Dr Salameh told the all-party parliamentary group on peak oil last month that Iraq had offered the United States a deal, three years before the war, that would have opened up 10 new giant oil fields on “generous” terms in return for the lifting of sanctions. “This would certainly have prevented the steep rise of the oil price,” he said. “But the US had a different idea. It planned to occupy Iraq and annex its oil.”
Howard’s attack on Beasley for his lack of ticker seems to apply to the once promising Rudd government.This early in the election cycle, they should be able stare down this hopeless opposition and present their arguments.Last year we signed Kyoto so climate change is a distant memory.Rudd must point out that increases in our fuel prices are inevitable and desirable to help climate change . They will happen no matter how loud the spoilt brats that make up the noisy , media friendly part of the population scream