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Assistant Treasurer discusses petrol prices; and interaction between GST and excise.



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INTERVIEW WITH STEVE PRICE

2UE

MONDAY, 26 MAY 2008

SUBJECTS: Petrol prices, interaction between GST and excise

STEVE PRICE:

And the Oppositions plan to pull 5 cents off the excise. What the Opposition has done now, and you saw Joe Hockey do this yesterday if you saw his interview on the Insiders on the ABC, it’s pushed the Government into a corner because Joe Hockey said ‘we are now the party of lower petrol prices’ and that’s the line they’re going to push. Regardless of whether it’s a sensible way to bring the price down or not, that’s the line they’ll push.

Well interestingly at the same time, Jenny Macklin was speaking about petrol and fuel prices to Laurie Oakes on the Sunday program. She made the point that the examination into taxation, that the Government has started, will look at the GST component on fuel. We pay GST on the price plus the excise, so it’s a tax on a tax if you like. Well this is something the Government’s ruled out in the past. Chris Bowen’s the Assistant Treasurer, he’s on the line.

Nice to talk to you again Minister.

CHRIS BOWEN:

And you Steve.

STEVE PRICE:

You were pretty clear back in May, weren’t you, that you didn’t think that you should fiddle with the GST on petrol, but you did concede, to be fair to you, that it would go into the tax review.

CHRIS BOWEN:

Yeah, exactly. What’s happened here Steve is, I made some comments in mid-May, about a fortnight ago, that one of the things the Henry Review of Taxation would look at is a matter of what people in the community would call ‘a tax on a tax’, the fact that the GST is imposed after the excise. I made those comments and I also said it would be very expensive so it needs to be done in a holistic way, as part of a broader review, to see if there’s anything we could or should do.

Now, yesterday a newspaper picked up on those comments, which I’d made a fortnight ago, and wrote it as if it was something new, which is fair enough; but there actually has been no change in our position over that fortnight. It’s something the review will look at, we recognise it will be very expensive and we need to consider whether it’s the best use of taxpayers’ money, the best way of dealing with this, but it is something that you would expect with a very broad ranging review of the taxation system to re-adjust.

STEVE PRICE:

So just like the review of pensions, this will go into that basket of things the tax review is going to look at?

CHRIS BOWEN:

Exactly.

STEVE PRICE:

It’s a huge project…

CHRIS BOWEN:

It’s a very big job. It’s a very big tax system, a very big and complex tax system, that’s why it will take a while. It’s been well over 20 years since such a comprehensive review was conducted and it’s high time that it happened.

STEVE PRICE:

Does this tactic though, of putting the petrol review of the GST into that review, now allow you to respond to the Opposition in Parliament today to say ‘we too are looking at the ways that we can bring down the price of fuel?’

CHRIS BOWEN:

Well of course we said this before the Oppositions announcement of their taxation plan. The key difference here Steve is that we’ve said this will be very, very expensive. If you did this, you’d need to do it in a holistic, considered and evidenced-based manner. Whereas the Opposition just pulled a policy out of thin air, which costs $2 billion a year and they’ve said ‘well we weren’t sure how much it was going to cost and we’re not sure how we’re going to fund it: whether we’re going to cut other Government expenses or increase other taxes to pay for it, or erode the surplus which will put upward pressure on interest rates.’

So we’ve said we’re having a whole look at the tax system and one of the things we will look at is the interaction between the GST and the petrol excise. They’ve just pulled a policy out of thin air. So there is a difference, but I must stress: we said this before their policy, so any sort of view that this is in response to them is misguided.

STEVE PRICE:

Would you like to see cheaper fuel prices?

CHRIS BOWEN:

Of course.

STEVE PRICE:

Given that we can’t influence the world price of oil and that we are tagged to parity pricing of oil, the only way to change that then, would be to fiddle with the 51.7 cents taken in taxes, isn’t it?

CHRIS BOWEN:

Well, a couple of points there Steve. There's been a lot of concern about the way petrol markets work, that there’s price gouging, that there’s not enough transparency. So what we’ve done there is appointed the Petrol Commissioner and increased the powers of the ACCC. Now you might remember Steve, every so often it comes up, that the price of petrol in Australia goes up more than the price of oil in Singapore, which is our benchmark. We’ve seen those concerns less and less since the ACCC’s been using their increased powers - since we’ve given them - and we’ve seen the price of petrol more closely reflecting the price of oil around the world and in Singapore in particular. So, those concerns will always be there, but we have now, if you like, 'a cop on the beat', with very great powers ensuring that if that does happen that the oil companies are called to account.

Now secondly, we have FuelWatch, this is our proposal which the evidence in Western Australia shows puts downward pressure on prices by about 2 cents a litre.

STEVE PRICE:

Does it? I mean there are arguments that FuelWatch has led to higher prices when you level them out in the west and elsewhere.

CHRIS BOWEN:

No look, I reject that. I reject that on the basis of the independent analysis by the ACCC, who are the experts in this field. There are a lot of people with a vested interest in this, as you would imagine, pushing their own barrow, but the ACCC doesn’t have a….

STEVE PRICE:

So it’s just a glib line for the Opposition when they say ‘you’re watching, we’re doing…’

CHRIS BOWEN:

Yeah, exactly. There are a couple of things about FuelWatch - it does put downward pressure on prices, but perhaps even more importantly Steve, the

difference between the cheapest and most expensive petrol in Sydney on any given day can be 10 or 15 cents and on some days it gets as high as 30 cents. Now, how would you know, how would I know driving around, where the cheapest petrol is? You wouldn’t have a clue. But if you on the night before log in and see the price of petrol at every service station in Sydney for the next day and you know with 100% certainty that when you get there that’ll be the price, you’ve really got a whole lot more power at your disposal, to find that cheapest petrol. If you can find petrol that’s 10 cents a litre cheaper than the petrol that you would otherwise buy, that’s where the big savings come in.

STEVE PRICE:

What do you say though to the truck drivers, who ring me on a regular basis, as we broadcast across New South Wales about the price of diesel and how it’s sending them broke and how they’re going to go out of business if we can’t find some way to bring diesel prices down? We now have a gap between the highest level of unleaded petrol and the retail price of diesel, which is up around 20 cents a litre.

CHRIS BOWEN:

This is a big concern for a lot of people. I get a lot of emails and calls about it and I know how much of an issue it is. It is something the Petrol Commissioner is examining. However, I have to say that there is a world wide move on diesel prices. What we’re seeing is China stockpiling diesel, for the Olympics, they’re buying huge amounts of it. We’re seeing some problems in supply, I understand, from South America; so around the world we’re seeing diesel prices go through the roof. A lot of people say to me ‘well diesel’s a by-product of petrol, it should be cheaper’ and they’re right; but it’s still the market forces which determine the price and there is a worldwide shortage at the moment. Now, what the Petrol Commissioner’s job is; is to make sure that nobody takes advantage of that shortage, to gouge prices and that’s what he’s doing.

STEVE PRICE:

Have you crunched the numbers on what the Oppositions 5 cent excise cut will cost?

CHRIS BOWEN:

Well I think they accept that it would cost $2 billion a year.

STEVE PRICE:

And if you added to that a three cent cut in the taxes itself, in the GST, if you took the GST off, have you done the numbers on that?

CHRIS BOWEN:

Again, it’s in the order of several hundred million dollars a year. That’s why it’s got to be done very carefully.

STEVE PRICE:

So to do it all, we couldn’t afford it?

CHRIS BOWEN:

Government Budgets are just like household budgets Steve, if you spend money on something then that’s less money you’ve got to spend on something else. Now the Opposition’s running around last week saying ‘now we’ll cut petrol tax, we’ll block the alco-pops tax, we’ll block the condensate tax, we oppose the luxury car tax and by the way, we’ll increase the pensioners base-rate’, we’ll you can’t be all things to all people.

STEVE PRICE:

So it could take some excise off, it could take some GST off, but it comes at a cost.

CHRIS BOWEN:

It comes at a cost, absolutely, and it’s money that you can’t spend on other things or it’s taxes you have to put up elsewhere. Or, as the Opposition seems to be indicating they would do: you raid the surplus which means more pressure on interest rates. So ‘well done’ if you reduce petrol taxes by a small amount, but you increase interest rates. I think most people would say ‘well I’m hardly better off’.

STEVE PRICE:

Given how the fuel price drives inflation and our concentration through the Reserve Bank has been on interest rates, on people’s mortgages, shouldn’t we be looking at that other driver of inflation, fuel prices, and working out a way to bring it down?

CHRIS BOWEN:

Absolutely, but it’s also important to remember Steve, that a lot of companies get a large proportion of their fuel excise back, through what’s called fuel-tax credits. So reducing the fuel tax doesn’t really put downward pressure on inflation by as much as you would expect, because of the fuel-tax credits which are therefore reduced as well. So, for example, look at FuelWatch, imagine a big company with a lot of trucks, driving all over Sydney and all over New South Wales and indeed all over Australia. If you’ve got somebody there that can say to the drivers ‘well look, here are the petrol prices for, in effect, every petrol station in Australia, bar some in rural and isolated areas….’

STEVE PRICE:

Get in and fill up….

CHRIS BOWEN:

Get in and go to the cheapest one. Now the benefits to a large transport company of FuelWatch are enormous, when they can provide information to their drivers you can say ‘well don’t fuel up in this part of Sydney, fuel up in that part of Sydney…’

STEVE PRICE:

Maybe we need some of those big companies to speak out in favour of it?

CHRIS BOWEN:

Well look, that’s up to them, but there are benefits of course for every motorist; but when you times it across a big company - a big transport company - the benefits are so much greater, and that’s where you see downward pressure on inflation.

STEVE PRICE:

Appreciate your time, thanks.

CHRIS BOWEN:

Anytime Steve.