Petrol Prices: “Gouging” Perhaps, Just Don’t Talk About The Tax Cash Cow

As of February 1 2016, the excise levied on every litre of petrol we buy is 39.5 cents (cpl). Despite falling petrol prices – which, the ACCC argues, are not falling quickly enough – that excise figure will only ever travel in one direction: upwards. 

The excise on fuel is pegged to the CPI and adjusted upwards bi-annually. And, of course, it is not the only tax impost on fuel, as GST is also added to the transaction, every time you buy.

Do motorists mind that they contribute so much to Federal coffers for every litre they buy? 

Possibly not, it is a key revenue stream of Government raising tens of billions of dollars annually, which builds roads and hospitals and parklands, and contributes positively to making Australia the privileged country and community we all enjoy.

But it is a significant impost on every litre of fuel, and it perhaps makes much of the discussion raised by the ACCC of price gouging and its ‘show cause’ demand of petrol retailers, seem just a little hollow. 

If we park the current barrel price of oil for one moment, that discussion turns on the question: “how much should we pay for fuel?” Only then do we know if we’re paying too much.

Consider this: if oil companies supplied fuel from the terminal gate at just 1-cent per litre, and the distributor charged just 1-cent per litre for transport and delivery, and the retailer charged just 1-cent per litre to supply it at the bowser – motorists would still be paying 47 cents per litre for every fill.

Because added to the cost of that fuel (3 cents) is the cost of excise (39.5 cpl) plus 10% GST.

But, of course, 3cpl is ridiculous – there is a cost to the manufacture and supply of any elaborately transformed product.

And the simple fact that we use a lot of it – vast, vast, volumes – may provide economies of scale but does not erase the significant cost involved in the extraction, refining, shipping, storage, bulk transport and delivery of the product. 

And also the fact that oil companies are never going to win the Noble Prize for ‘services to humanity’, should not obscure the other fact that we’re addicted to this fossil fuel, and expect to have it supplied in modern, easily accessed high-tech facilities for next to nothing.

For less than bottled water.

So, given that close to half of what we currently pay per litre is excise and GST (with prices hovering around $1.10 per litre), is there now an air of unreality to what we consider to be ‘a fair price’.

The ACCC points to the collapse in the barrel price of oil and says the price should be lower. Chairman Rod Simms, says, possibly correctly (but that's to be shown), that retailers have been too slow to pass on the savings and are thus profiting unreasonably at the pump. 

Gouging consumers, in other words.

But what is “profiting unreasonably”? Is it more than making hay while the sun shines, and at what point does it move from a subjective judgment to empirical? Surely the ACCC is on a hiding to nothing here. 

Plunging world barrel price

The global price of oil is hovering around USD$30 per barrel, with WTI (West Texas Intermediate) at USD$29.44, and Brent Crude at USD$33.36.

That price, $30 a barrel, values 159 litres of crude oil – extracted and ‘potted’ for shipping – at about the same price as one cheap sneaker (not a pair).

The most heavily traded commodity on the planet, the barrel price of oil has been on a plunging roller coaster ride in global markets. From $145 a barrel in 2008, to be now just a fifth of that value (and not inconceivable that it may fall further).

Some recent commentary puts this current distorted figure at below the actual cost of production, but that’s incorrect. ‘Break even’ for most major oil producers is at around USD$20 a barrel (USA at around $15pbl, Kuwait and Saudi Arabia as low as $10pbl).

TMR Managing Editor