PETROL TAX-FREE PRICE IS LOWER NOW THAN 13 YEARS AGO

Press, Volume CIII, Issue 30528, 25 August 1964, Page 14

PETROL TAX-FREE PRICE IS LOWER NOW THAN 13 YEARS AGO

The information in this article has been supplied by the public relations department of Shell Oil New Zealand, Limited.

The price of petrol is important to every New Zealander. It i s important not only to-the private motorist and to the transportation industry/ but also to the retailer making his livelihood out of selling it to the public; It is immensely important to the Government and, of course, it is of fundamental importance to the oil companies who bring petrol to the world’s market and who must generate large sums of money to look for. find r and produce the crude oil from which it is finally processed.

Thus, there are four groups of people involved: THE OIL COMPANIES, which manufacture and distribute the finished product THE GOVERNMENT, which has traditionally looked to petrol to produce a substantial proportion of its revenue. THE RESELLERS, who rely on the return from the sale of petrol for a good part of their livelihood. AND THE CONSUMERS, who expect the ultimate selling price to be not only fair and reasonable, but also to be as stable as possible.

How cheap is petrol in New Zealand? Are we paying any more or any less fbr it than other comparable countries? Are we overtaxed by comparison with others? How stable has the price been in New Zealand over the last 10 or 12 years? Retail Price Comparison By comparison with consumers in other countries, and bearing in mind that he is at the far end of the supply line, the New Zealand consumer does not do badly. Retail prices vary widely from one part of the world to another, largely because of differences in tax levels. This is well shown by the following list of approximate prices for “regular grade” petrol (in New Zealand pence a gallon) in some of the world’s capitals:

“Regular grade” petrol is not necessarily of the same octane rating in all countries, but octane variations account for only a small part of the above differences in price. On the other hand, taxation may be as high as 4s 10}d a gallon in Paris and as low as 9Jd in Melbourne. Variations in reseller margins also play a part, and the freight element will obviously be greater in areas more remote from supply sources. Government’s Share Petrol has traditionally been a target for the taxgatherer—in some countries more than in others. For his part, the New Zealand motorist contributes Is s|d to Government revenue every time he buys a gallon of petrol. This goes direct to the

National Roads Board and is spent on the construction and maintenance of. the country s roading system. The main feature of petrol tax is that it can be —and in fact is—varied by Governments at will. The increase of Is a gallon on June 27, 1958. comes readily to mind. At the time when this additional impost was made, petrol .tax accounted for 55 j per. cent of the retail price of petrol at main ports; The level of petrol tax is, of course, in no way related to the cost of producing and marketing the product, and it is normal practice to disregard it when studying the movement of petrol prices over a period. When Tax Is Disregarded If, then, we look at the taxfree price, we are looking at the total price paid to those who actually handle the product through all the many processes necessary to bring it to the motorist. These are, of course, the oil companies, who not only search for crude oil, but also produce, trans-

port and refine it, and distribute the finished products, and the resellers, who retail it to the motorist. The interesting thing about the tax-free price of petrol is that it is lower now than it was 13 years ago—in April, 1951, it was 23.30 pence per gallon and it now stands at 20.75 pence, a reduction of 2.55 pence a gallon, or nearly 11 per cent.

But the regular-grade petrol sold today is a much superior product to what was available in 1951. There have, in the meantime, been two pronounced increases in octane rating—from 72 O.N. to 79 O.N. in .1954, and from 79 O.N. to 83 O.N. in 1960. Motorists today are therefore getting a much better product at a substantially lower price. It would be difficult to find another commodity in everyday use that (tax-excluded) is retailing at a price nearly 11 per cent lower than it was 13 years ago.

The tax-free price is made up of the wholesale element and the reseller’s margin. Wholesale Element Before the opening of the Whangarei refinery, the wholesale element—i.e., the amount paid to the oil companies—was based on the average c.i.f. of all the companies’ importations. Today, however, it is based on the value of the product delivered from the Whangarei refinery. To this is added a fixed margin which the price fixation authorities allow the companies on each gallon of petrol, to cover local marketing expenses and profit. The wholesale element has come steadily down since 1951. There was, however, a temporary increase of 2d a gallon in November, 1952, caused by the impact of the Korean War, and another temporary increase of 3d a gallon in December, 1956, caused by the increase in freight rates at the time of the Suez crisis. But the trend can be seen to be steadily downwards. How has this been achieved in a time of rising costs? There are many contributing factors, chief among which is competition, both local and global, and the natural effect on prices of an excess of supply over demand. Effect Of Competition World competition in recent years has appeared in new forms. Every year has seen the genesis of new and vigorous young companies. Others, which in the past have confined their operations to a local market, have ventured into the international field, while others, which have hitherto simply been producers of crude, have

built and operated refineries and tankers and have sometimes developed marketin' organisations as well. halt \ E.N.I. has relied substantial, ly on Government support to secure advantages over competitors, and overall has been the constant threat from the Russians, whose oil exports have been increasing year by year and whose willingness to accept politically, orientated prices has brought the companies of the free world up against an entirely new form of competition which is extremely difficult to combat.

Under the spur of compel i tion, the search for greater and greater efficiency has brought undeniable benefits to the consumer. The use <if increasingly large tankers, the speeding up of tanker dis. charge rates, and the use of improved refinery processes are good examples of the powerful factors which have helped to keep the industry's costs down. On the local scene, in a time of rising costs, the development of a market based predominantly on the onebrand service station concept has enabled substantial economies to be made in transportation and storage arrange ments, and this has brought to the whole distribution system a pronounced streamlin ing which has softened the effects of unavoidable increases in other cost items. Resellers’ Margin

This is the final element in the make-up of the price of petrol. Once the wholesale element has been determined and the Government’s tax re quirments met, the retail selling price is fixed by applying a mark-up designed to meet the costs of the reseller and allow him a profit. The margin is now 4d a gallon. This is not the profit made by the reseller, but his total income a gallon of sales, and out of it he has to pay all his expenses. If anything |is left over after these have I been met, it is, of course, profit but it is clear that a largo volume of sales is required if a reasonable profit is to be generated. The margin is controlled and cannot be varied without Government approval. Before the Prime Minister’s recent announcement it had stood at 3jd since July 1960. For six years before that it was 3}d and before that 3d a gallon, where it stood at the outbreak of World War 11. II has therefore risen by only 33 1-3 per cent since 1939. while the reseller’s costs during the period have, of course risen by a good deal more than that. Current Price Build-up Today’s retail price a gallon of 83 octane motor spirit is made up of the following elements:— Wholesale element (amount paid to the oil companies) Is 4(d Tax (amount paid to the Government) Is sjd Reseller’s margin (amount paid . to the service station owner) .. .. 4d Total ... .. 3s 2jd This price applies at the main ports. Up-country prices are established by adding the appropriate transportation differential. Premium Grade The retail prices of premium grade motor spirit is a gallon higher than that of regular grade. It is, of course, a more expensive product to manufacture and one would therefore expect to pay more for it. The margin allowed to resellers, however, is the same in each case, and so, too, is the amount of tax taken by Government. The reduction of Id a gallon announced recently by the Prime Minister is the first movement in the price of premium-grade motor spirit since its introduction in 1961. The simultaneous increase in quality from 93 to 96 octane once again means that motorists are getting a superior product at a lower price.

Paris s 6 d 6 Lisbon .. .; 5 114 Rome 5 Oi Brussels .. .. 4 111 London 4 6 Singapore .. ' .. 4 4 Tokyo 3 11 The Hague 3 91 Wellington 3 21 Capetown 3 0 San Francisco .. 2 8? Melbourne 2 81