Labor overwhelmed by oil price crisis

A SEVEN per cent swing against it in the Gippsland by-election, a truckies’ blockade in NSW and news that the rising cost of living has wiped out the benefits of Labor’s budget tax cuts testify to the first real pressure on the Rudd government. The key factor is the inexorable rise of the price of oil.

The average price of a barrel of oil when the US invaded in Iraq in 2003 was US$25. Now it is US$140, with predictions it will hit $US170 by the end of the year.

Petrol has risen by 40 per cent since January to 169 cents a litre and $2 a litre looms. On top of rises in mortgage repayments, rents and food prices, households are demanding that the government do something.

The price of oil is likely to continue rising. Numerous factors are contributing to the price rise. These include a surge in oil price speculation; actual interruptions in supply; and, finally, concern that the global supply of oil is being exhausted by increased demand.

All of these factors point toward the madness of relying upon a commodity that contributes to social, economic and environmental instability.

Paying for petrol to drive a car is only the start of the problem. Higher oil prices feed into the cost of almost every commodity because of higher transport costs.

What can be done?

The Rudd government is at pains to emphasise the international factors “beyond its control”. So can the government do anything about the price of petrol? The orthodox economists’ view is that the best cure for high petrol prices is higher petrol prices, which should stop people buying it and force the price to come down.

It is true that the cost of petrol has forced many people to return to public transport, especially in Sydney. But the reason buyers continue to pay the price is the dependence of most people on their cars for transport. Public transport is non-existent in the outer suburbs, the only place most workers can afford to live, so driving is the primary means of getting to and from work.

This is why the Greens’ support for a carbon tax to discourage car usage and petrol consumption is mistaken. Without a viable alternative in public transport a carbon tax would be passed onto consumers by the oil producers.

The big oil companies are already extracting fat profits—up by 17-25 per cent this year alone it was reported to a US Senate Committee. In these circumstances, a carbon tax would amount to a handout to the oil executives.

The Opposition’s call for a 5.5 per cent cut to the fuel excise is pitiful against the 40 per cent price rise in 6 months.

The Australian Conservation Foundation (ACF) has made a similar call but has also argued for scrapping the fringe benefit tax concessions and the fuel tax credits scheme (which subsidises the use of diesel by large mining, transport and oil companies).

But any changes to consumer-end tax rules could only provide temporary relief at best. What is needed is massive investment in public transport services to provide a reliable alternative to driving. Most public systems have been neglected or semi-privatised. Fixing this will take real money—like the $2.5 billion which could be saved under the ACF’s proposal.

What would be possible is a major increase in the bus systems, redrawing routes to cover our cities in a grid of services which should be no more than 10 minutes walking distance from any business or residence. An expansion of the rail network is also needed. In country areas where distances limit using buses, and public services are not available, there should be tax relief for workers who pay more for petrol and assistance to buy fuel-efficient vehicles.

The key point is that the government can—and should—do something to relieve the impact on workers of the rising price of petrol.

By Anne Picot


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