THE PRESS WEDNESDAY, JULY 30, 1980. The next petrol price increase

Press, 30 July 1980, Page 16

THE PRESS WEDNESDAY, JULY 30, 1980. The next petrol price increase

Price increases by the oil-producing countries, and increasing costs in New Zealand, make it inevitable that the price of petrol will have to increase again very soon. The increase will not be the last. A pattern is emerging in which the price rises at intervals of about three months. While inflation continues at something close to 20 per cent a year, and while oil producers continue to increase their prices at frequent, irregular intervals, consumers in New Zealand must expect to be asked regularly to pay more. A system of increases four times a year does, at least, smooth out irregularities in the prices New Zealand must pay for oil imports.

This time an increase of as much as 10 cents a litre has been forecast, an increase of nearly 20 per cent which would lift the price of petrol to 62 cents a litre, or about $2.80 a gallon. Such an increase, however distasteful it may be, is probably no more than is justified to keep up the flow of cash to the pool of funds from which New Zealand paj's for its fuel imports. Other factors besides the oil producers’ prices have also to be taken into account. Petrol resellers appear to have a good case for an increase in their margin which, at less than four cents a litre, does not provide an adequate return, especially when substantial price increases mean that petrol sellers must tie up more and more capital to maintain stocks.'

At present the Government takes nearly 13 cents a litre in duty. Local authorities receive 0.66 cents a litre. The Government’s tax on petrol has increased steadily from 4 cents a litre five years ago. The local authorities’ tax has remained the same since it was first introduced 10 years ago. Christchurch City Councillors pointed out recently that the council’s share of the price of petrol had fallen from 7 per cent of the retail price to about 1.3 per cent. Although this does by itself provide a case for an increased levy, petrol consumption has actually declined a little and local authorities are therefore receiving a little less from the tax. They could make a case for an increased levy at least to match the increase in their own essential spending. . A case might be made for reducing the duty on motor spirits as a means of reducing the price to consumers, or for transferring some .of the duty to local authorities. But any reduction in duty would do no more than delay the next rise in the price of petrol. This adjustment could be made only once — or twice at the most — to steady the petrol price and the lost revenue would have to be made up elsewhere. A reduction in the duty on motor spirits, especially if it was made up from income tax, would be a reversal of the move to indirect taxation as

a way to take some burden off those who pay tax on personal income.

The price of oil is increasing rapidly enough, for the Government to give up any further thoughts that extra price increases might be made to encourage less consumption. For many users, rationing by price is in force now. Increases in consumption have been halted. Imports of oil and sales of motor spirits have fallen in the last year.

Deliveries of petroleum are down by 7.2 per cent for the year ended March, 1980, a difference of nearly 100,000 tonnes in a year. Price increases, earless days, and restrictions on week-end sales have probably all played a part in making New Zealanders more cautious in their use of transport fuels. The need now is to find ways of reinforcing and increasing that caution without further resort to formal restrictions.

When petrol was last increased in price in May the Minister of Energy, (Mr Birch), proposed a series of measures to further restrain consumption. These included more rigorous enforcement of speed restrictions, more attention to engine efficiency, and measures to encourage the pooling of cars and vans. Stricter enforcement of speed limits will apply next month. When the next increase in the price of petrol is announced the enforcement campaign will probably be under way.

The frequent increases in the price of petrol and oil are, unfortunately, reflected in the consumers price index, not only because of the cost to private motoring, but because of the effect on almost all transport in the country and, ultimately, on the price of many goods and services. The South Island is generally hit harder by increases in freight charges. All New Zealanders are tempted to recover their extra costs by charging more, either for their goods or their labour.

To remove increases in the price of fuels from the price index would be unrealistic: but if the increases add to demands for higher wages, and to the price of many goods, they do no more than increase inflation and make further increases inevitable. The country has still to accept that unlimited access to transport fuels is a luxury which many New Zealanders, and the country as a whole, can no longer afford.

To use a little less fuel would be a relatively painless way for many New Zealanders to lower their standard of living a little. If a substantial petrol price increase can be accepted and absorbed, as far as possible, without everyone seeking compensation, there should be benefits for all in the reduced pressure on foreign exchange and the reduction in the spiral of inflation.