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The realities of trying to bring petrol prices down

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It's hard to see how petrol prices can be brought down without Government regulation.

Most political leaders relish what might be called their “gutsful” moments – typified by Helen Clark, who used to preface drastic action with, “People have had a gutsful of …”

Not all gutsful moments are great “Build a wall/Drain a swamp” theatre. John Key’s were a bit yeah/nah, but you could tell he’d finally taken the hatchet to an issue when he omitted to say he was “relaxed” about it. Bill English struck without warning. He had such a gutsful of Housing New Zealand that it woke up one morning to the news that all its properties were to be transferred to private charities. This didn’t eventuate, as few charities wanted them either – which underlines that the key to a successful gutsful moment is to have one’s ducks in a row so that decisive action can follow immediately.

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Alas, Prime Minister Jacinda Ardern risks looking ineffectual after her “consumers … are being fleeced!” attack on petrol companies. This week’s urgent legislation to empower the Commerce Commission to get after price-padding industries is long overdue. But it’s hard to see how it can bring petrol prices down inside a year, or even at all, unless the Government regulates as well.

Don’t frighten the horses

There are sound arguments that it should. Fuel retailing here is more cartel than competitive market, and the Labour-led Government could easily justify restricting its mark-ups. But with business confidence stubbornly low, the fallout would be cacophonous. If it regulated before the commission fully investigated pricing practices, it might please the average voter, but at the price of rattling investment confidence.

Overseas investors, who have chronic regulation allergy, won’t study our fine print and conclude the petrol companies had it coming. They’re apt to think, “If those lefties just up and regulate this, what’s next? The full Jeremy Corbyn re-nationalisation? We’re out of here.”

But if the Government waits umpteen months for the commission’s findings, it will only defer the toxic business response, for even officials’ considered advice that the companies really are gouging will butter no parsnips with investors. Meanwhile, voters will have had months longer to resent prices at the pump, and to notice that Government talk doesn’t match Government action.

Illustration/Jeff Bell

On the bright side, there’s some evidence a good public bollocking from on high can shame uncompetitive sectors into voluntarily stopping price-padding. Even though the Government’s preliminary report on electricity pricing merely stated the bleedin’ obvious – that those companies are taking the Mickey too – industry heavyweight Meridian had a “come to Jesus” response, voluntarily cutting its prices by 10-16%. This was by scrubbing the traditional “early-payer discount”, which, it admitted, was really a form of price padding on the bills of late payers. It called on other companies to follow suit.

This was in the same week as the fishing industry voluntarily agreed to cut its hoki quota to protect the fishery. Doubtless, hospitals coped with the ensuing rush of admissions of people reporting hallucination and shock. It does seem possible the Occupy movement has hit on a clever new tactic: dosing the Nespresso pods of our major corporates with a benevolence drug. If this continues, regulation and even the Commerce Act itself will be unnecessary.

But given the history of glowering between governments and petrol companies, some executives would need a permanent intravenous drip of mindset-altering drugs to stop their rapacity.

Look what happened when National’s energy minister, Judith “Crusher” Collins, went after petrol companies’ margins last year. Nothing. After officials reported they’d detected anti-competitive behaviour, she had a “gutsful” moment and asked to see their cost breakdowns. Instead of having the sort of intestinal continence outage those in Collins’ sights usually suffer, industry heavyweight Z Energy gave her the raspberry. She got nowhere.

Save for smaller, shoestring independent Gull, whose presence has at times kept prices down in some districts, the industry is mulishly defensive of its margins. And it argues that, as it also sells chocolate, firewood, chrysanthemums and other sundries, its petrol mark-up is only part of the story and should not be targeted in isolation.

That sucking sound

By Automobile Association estimates, the companies’ mark-up is about 21% of the price per litre. The Government gets 28% in direct tax (excluding the Auckland levy, GST and the emissions trading scheme charge), which sounds a lot, but ours is actually among the world’s lowest-taxed petrol. Other countries take as much as 75%. Given that the Government just introduced a special-purpose Auckland fuel tax, and has ended new offshore oil and gas exploration, the petrol companies can, if disingenuously, lob the blame for higher fuel pricing right back at the politicians. Neither the new tax nor local oil – which we mostly export – is the driver of anti-competitive practices in petrol pricing; they don’t begin to account for recent jumps of up to 19% at the pump. Our retail petrol prices are near to or the highest in the developed world.

But the politics are potent. It’s hard to stop voters mis-joining the dots when the Government has forgone potential earnings from new oil finds and is talking about more regional fuel taxes.

Any notion of reducing what the Government siphons from our petrol  spending was doused by this week’s financial update. It’s true that at $5.5 billion, the “fiscal hole” former National finance minister Steven Joyce predicted for Labour now appears to be somewhat Himilayan in its convexity. But Finance Minister Grant Robertson says cutting revenue is not an option, as he’s strait-jacketed by an alarming range of contingencies, such as compensation for the disease-hit agriculture sector, catch-up pay settlements, the US-China trade war and fear of global recession.

All up, whatever Ardern’s biome is telling her about petrol prices, the issue remains on pause. At press time, the outbreak of voluntary restraint elsewhere was also looking a false dawn. Whatever Nice Guy drug got into Meridian, its competitor, Genesis Energy, has commenced the detox by saying its price cuts were “unhelpful”.

This article was first published in the October 20, 2018 issue of the New Zealand Listener.