ANALYSIS: High inflation, rising home loan rates, and extremely high petrol prices have all been making life more difficult for households.
And it’s about to get worse for households as August 15 approaches, which is the date on which the Government’s 25 cents per litre reduction in excise tax on fuel comes to an end.
Even taking into account petrol retailers’ discounts, petrol is costing motorists over $3 a litre, and the AA has raised the spectre of long queues, and fuel shortages, at petrol stations as the deadline approaches.
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For households, it’s been painful.
In June last year, Stats NZ recorded that 4.6% of the average household’s spending was on petrol, and middle New Zealand was spending 5.2%.
That was back when the price at the pump (with retailer discounts) was around $2.30.
Dave Bodger, general manager at Gull, says as August 15 approaches panic petrol-buying could turn it into the forecourt equivalent of toilet paper and flour in the early days of the Covid pandemic.
Long snaking queues would lead the television news, says Terry Collins, principal policy adviser at AA, as happened when a comment from discount retailer Waitomo sparked panic-buying.
Petrol distributors don’t have the trucks to deliver enough to cope with a huge spike in demand, Bodger says.
With the Government under fire for rising gang gun violence, a healthcare staffing crisis, and the cost of living crunch, what options does the Government have to avoid disruption as August 15 approaches?
ACT leader David Seymour says there is a reason why Milton Friedman said there was nothing permanent than a temporary government programme.
“It’s the kind of policy that once in place, attention turns to how to get rid of it. There will be a day of reckoning,” he says.
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ACT leader David Seymour says as soon as the Government announced the temporary petrol excise tax reduction, it faced a day of reckoning.
Cross its fingers and carry on
Energy Minister Megan Woods’ office says she has not decided on a tax cut extension, but was monitoring petrol costs.
“I actually think they have got their fingers crossed that the price will come down,” says Collins.
A lower price would mean fewer people felt panicked into buying, and August 15 would pass with less comment.
Looming recession globally could lead to fuel prices falling, but with supply chains still disrupted, it was a risky strategy.
That would allow the Government to reverse out of a policy that pulls in the opposite direction to its climate change policy.
Extend the discount
The Government reduced fuel excise on March 14 for three months, but that was extended to August 15.
A further extension would be possible.
“They’ve taken a huge gamble, and I would say unless there’s a 25% or greater decline in petrol prices, they will kick the can down the road. They will say at this point in time we couldn’t possibly give people a price hike, so we’re going to continue it,” Seymour says.
Nick Tuffley, ASB chief economist, says the choice meant missing out on more tax, and deciding whether each $1 it spent on keeping pump prices down would not be better spent elsewhere, such as on healthcare, or education.
“They could find the money from somewhere, even if it added to the country’s borrowing,” he says. “But is it quality spend, or not?”
The temporary excise cut was paid for from the Government’s Response and Recovery Fund, and the first three months of the excise cut was forecast to cost $350 million.
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ASB chief economist Nick Tuffley says the government could find the money, if it decided to extend the excise fuel reduction past August 15.
Collins estimated that the Government was missing out on nearly $5m a day as a result of the temporary tax cut, as well as a temporary reduction in the Road User Charge (RUC).
He says a short postponement to September 21 would harmonise the end date with the end of the RUC reduction period.
But he would hate to see the cost funded from the country’s road maintenance budget, for which every dollar was needed.
Phase out the excise reduction
Gradually increasing excise tax over a period of weeks could reduce panic-buying, and people stocking up by filling up petrol cans.
“It may be better done in stages, rather than all at once,” says Tuffley.
But even that would come at a cost.
A region by region phase in would be risk unforeseen consequences, such as people driving across regional borders to fill up, seeking the lowest cost tank of fuel, Collins says.