The Fuel Watch Controversy
The recently elected Australian Federal government yesterday released it’s plans to combat the escalating prices of fuel which was a major element of it’s winning ‘Working Families under pressure’ campaign. The FuelWatch Scheme is set for introduction in December but is it just a taxpayer funded advertising program for fuel retailers?
Many economists and motoring groups are questioning the validity of whether there will be any benefit to the end consumer and many suggesting the consumer will actually be worse off. Popular economics writer, Terry McCrann, has labeled it “… a decision driven by spin to seem to do something about petrol prices” and motor groups such as the RACV stating that “In effect, the only certainty being offered to motorists is more uncertainty”.
Under the National FuelWatch Scheme petrol stations will be required to inform the ACCC of their next day’s prices by 2pm the day before and maintain this advised price for a 24 hour period. Consumers will be able to access these figures via email, SMS, A toll free number and via a FuelWatch website.
And for the taxpayer it doesn’t come cheap with reports of first costings indicating that implementing the plan would cost taxpayers $30 million.
The scheme is based on a model introduced in 2001 in Western Australia and motoring groups are asking for evidence that petrol prices have lowered there since being introduced. Woolworths, a major fuel retailer in Australia, has gone on record to state that since 2001 W.A is it’s now it’s most profitable state.
One of the major concerns being raised is that the consumers could loose the ability to take advantage of the current fuel price cycle where it is seen that certain days offer big savings. Many are arguing that the scheme will cause a ‘flattening’ of the fuel cycle and a loss of the weekly discount day that, as indicated by sales volumes, many consumers are taking advantage of.
Check out my cheap fuel! Don’t look at the price on the milk though…
Other concerns could include that the taxpayer could be funding and advertising platform that leads to anti-competitive practices. Consider this, could major retailers now have the opportunity to advertise prices lower than cost, subsidised by high margin convenience store sales, that forces independent and small operators out of business?
Yes, you might have got cheap fuel but you probably handed that back by succumbing to the gauntlet of goods presented on the way to the checkout. So your wallet is no better off and an independent goes out of business. At the end of the day less operators and overall competition is not what the consumer or the ACCC want.
But you promised……
The next question that begs to be asked is as to whether it meets public expectations created by government for political gain, and as to whether they should be putting forward any expectations at all.
Mis-leading the perceptions of everyday people or creating mis-conceptions is a dangerous game. It’s not within the time available of the everyday person to now how global markets work let alone the complexity of crude oil prices. And when you know no better you believe those in which you place trust. That trust shouldn’t be used for advantage.
Governance that becomes answerable to mis-conceptions over matters which they have little control are at times led to making disastrous decisions in attempts to gain control and hold on to political popularity.
Fortunately, positions are being corrected and expectations dumbed down as PM Rudd and MP Bowen put forth:
Petrol prices will always be linked to fluctuations in international oil markets. If the global price of crude oil goes up Australian retail prices will be affected.
The National FuelWatch Scheme is not a silver bullet that breaks this nexus; no government policy can guarantee that petrol prices will always go down.
Where to Then?
How about Crude Watch? As one of input costs to the production of fuel, would it not make sense to know what is determining the price of crude in the market which would then lead us to asking better questions to help set a clearer direction for the future? For example:
Is the current price of crude just a cyclical peak until investment in new exploration returns results?
Is the current price of crude reflecting the new increased costs of sourcing what is possibly a diminishing reserve?
If the second is true, should we be preparing and factoring for continuing rises?
Extending on that theme, are we investing enough into research and development of alternate power systems for the motor vehicle, and infrastructure changes if such is required.
Considering our large reserves of both, is Coal Liquification or Shale Oil a solution?
Until greener solutions arrive, the rather conflicting question for government is to also answer how Climate Change policy interacts with fuel price in the interim?
Yes, lots of questions, and there is sure to be lots more. Better questions lead to answers and onwards to better solutions…….
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Some Fuel Facts:
Around 20 per cent of petrol consumed in Australia is imported mostly from Singapore which is the largest refiner in the Asia-Pacific region and a major marketing centre for fuels and oils.
The Singapore market provides the benchmark for Australian unleaded prices. Tapis Crude is the key benchmark for crude oil prices.
The ACCC reports Australia actually has the fourth cheapest petrol in the OECD (after Mexico, the United States and Canada)
Australian Government Excise on unleaded (capped in 2001) is 38.143 cents. GST is at the standard rate of 10%.
The Queensland State Government provides a state subsidy of 8.4 cpl for unleaded petrol.
In the Northern Territory there is a state subsidy of 1.1 cpl for unleaded petrol.
Certain zones of NSW and SA also receive subsidies.
Charts:
Average Monthly Retail Petrol Prices 2002-2007
Petrol Prices and Taxes in the OECD
Tapis Crude Oil Prices
More Information and Sources:
Petrol prices and Australian consumers, ACCC, 2007, Online at http://www.accc.gov.au/content/index.phtml/itemId/806216
Facts about Prices and the Australian Fuel Market, AIP, 2008, Online at http://www.aip.com.au/pricing/facts/
Fuel more costly under 24-hour rule, 2008, RACV, Online at http://www.racv.com.au/….
Perhaps, as consumers, we are partly responsible - we want (or need) the freedom and benefits of the motor car and we’d like it without sacrifice. Perhaps instead of asking for cheap fuel we should ask where is the alternative fuel or where are the minimum economy standards for new cars?
I see the truth is starting to come out…
Seems like fuelwatch is turning out to be not much more than fuelish spin!