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ROAD TRANSPORT FORUM - Who is actually fleecing you at the pump?

Tuesday, October 29, 2019

The whole debate around the New Zealand fuel market gets even more complicated if you take a step back and consider what the government’s overall strategy is.

Do you feel as though you are being ‘fleeced’ at the fuel pump, as the Prime Minister has recently suggested? With prices for unleaded petrol as high as $2.20 and diesel above $1.55, it is highly likely that families and business alike are feeling the pinch. However, the question needs to be asked – who is it who is actually doing the fleecing? The recent draft report from the Commerce Commission’s market study was interesting and came up with some good suggestions around increasing access to terminals and providing retailers with greater contractual freedom to make it easier to switch between suppliers. However, probably the most telling aspect of the report was what the Commission was forbidden to consider: the massive impact of government taxation on the price of fuel.

As much as 44 percent, or 97c on $2.20 per litre, of unleaded 91 is a combination of fuel excise, ACC levies, Emissions Trading Scheme (ETS) levy, and the Auckland regional fuel tax. When you put all these taxes against the 34c per litre that is the average gross margin for fuel companies, the question over who is actually doing the fleecing becomes quite an interesting one. Remember, this is a government that has added around 20c in taxes to a litre of 91 in only two years in office. The whole debate around the New Zealand fuel market gets even more complicated if you take a step back and consider what the government’s overall strategy is.

Generally, when it comes to roads, cars, trucks and the use of fossil fuels, this government has been doing its best to discourage their use and to incentivise people towards electric cars. It has refused to provide funding for new roads, prohibited future exploration for oil and gas, and introduced a low-emissions ‘feebate’ scheme that will penalise lowincome families and that, Treasury concluded, will make little discernible difference to New Zealand’s emissions. But by commissioning the fuel market study and then proclaiming that motorists are being ‘fleeced’, the Prime Minister has effectively defended users of internal combustion engine vehicles, created the environment to push fuel prices down, and helped to preserve the dominance of fossil fuels into the future. It’s a bit confusing to say the least. The other big question outside the bounds of the Commerce Commission study must also be what the country is actually getting for the high level of fuel tax and road user charges (RUCs).

You see, the government’s political licence to inflict extra taxation on motorists and road transport operators traditionally comes from the public’s knowledge that the money is reinvested in the provision of better, more modern transport infrastructure. People on the whole can accept an increase at the pump, or to their RUCs, if they know their investment is actually going towards improving their transport experience, alleviating congestion and making roads safer. The problem is that none of that is happening. Almost all new roading projects have been suspended or cancelled, the Auckland light rail project has been pushed back a number of years and Let’s Get Wellington Moving has resulted in a transport plan that will not fundamentally deal with the chokepoints that are at the heart of the city’s increasing congestion problems. Compare the situation here with what is happening in Sydney.

In New Zealand, infrastructure debates are characterised by simplistic binary arguments of rail over roads or light rail over new motorway projects. This results in periods of almost complete inaction as everybody gets tied up in knots, which results in further strain on an already creaking infrastructure. By contrast, the New South Wales Government is doing it all. Major motorway projects like WestConnex and NorthConnex are currently taking place alongside a new light rail system and improvements to existing commuter rail services. There is also a second harbour tunnel project in the pipeline to further free up congestion from the city centre. Most New Zealand visitors would agree that Sydney already has reasonable transport infrastructure; however the city’s officials refuse to stand still and – through a combination of public funding, public-private partnerships and tolling – they are future-proofing the city for well into the 21st century.

So, when the government releases the final fuel market study report later in the year and imposes a new set of rules to reduce fuel company margins, it’s worth considering just who is really fleecing who here. Is it fuel companies that have indeed increased their margins, or is it our government, which has significantly increased taxation on motorists yet made no discernible progress in providing the country with the transport infrastructure it so desperately needs?