Trust in a fuel tax relies on trust in oil industry

Auckland Council has taken the unpopular step of supporting a regional fuel tax that will see their ratepayers pay an extra 11.5 cents per litre for petrol. Or have they? There is no doubt that, assuming legislation enabling the regional fuel tax is passed, more money will flow from the oil industry to the Government, in proportion to fuel sales in Auckland.

For all the public scepticism about the behaviour of New Zealand’s fuel companies, those companies do know how much petrol is sold where, and will pay the excise bill immediately.

But who says that money will come from Auckland motorists? How will anyone know the cost is not spread across the country? Even worse, how can motorists in areas like Wellington and Christchurch, and many other South Island centres where price competition is limited, be confident that they aren’t paying the entire tab?

This week’s revelations about BP have exposed sharply tactical pricing by the major oil companies. A pricing manager in BP’s Auckland headquarters hatched a plan to raise prices across a region in order to protect sales at a single site, in the hope that its rivals would follow, as they had in the recent past.

Motorists were outraged, if not surprised. As the prime minister put it: ‘‘To hear so blatantly that pricing decisions are being made that sit so far outside the price of crude oil, that sit outside the exchange rate, that sit outside, for instance, operating costs, will no doubt be raising eyebrows with consumers.’’

As well as raising eyebrows, what the episode demonstrates is a two-speed petrol market. Some parts are highly competitive, and some are not. In some areas, petrol is arguably being sold at a loss; in others, the margins are very healthy indeed.

But the excise tax on petrol is the same across the country, in theory at least, at about 66.5c a litre, plus GST. The petrol companies do not collect the money site by site. Each one pays one huge bill at the end of the month.

So when Transport Minister Phil Twyford says his Government is slapping an additional 11.5c a litre on fuel in Auckland, he’s really saying he hopes that is what will happen. Twyford will get his pot of money for Auckland projects, but exactly where it comes from, only the fuel industry knows.

Dave Bodger, the long-time New Zealand boss of Australian-owned fuel discounter Gull, admitted it would be impossible to identify exactly where the excise tax comes from. ‘‘We’ve only got one chequebook.’’

Could the Government make sure that Auckland pays the bill? Twyford seems to believe so, announcing he had ‘‘asked officials to set up a monitoring system when the regional fuel tax comes into effect’’ to ‘‘mitigate the risk of price spreading’’.

This might sound like it could work, and more monitoring of the industry is welcome. But unless Twyford is suggesting petrol stations across Auckland engage in something akin to synchronised swimming, moving by the same amount at the same time, how will he be satisfied?

While such price-matching activity occurs in certain cities, in my own, genuinely held, opinion, across Auckland prices vary by more than 20c a litre. If a cut-price operator enters a part of Auckland where prices are generally high, nearby stations will respond, cutting the profit margins. In areas where there is less competition, margins will probably continue to climb.

How will Twyford honestly be able to say that the added money set aside for Auckland came from Auckland?

Road Transport Forum chief executive Ken Shirley said the BP email demonstrated the folly of the provincial fuel tax, claiming the Government had ‘‘shown absolutely zero understanding of the retail fuel market and how prices are manipulated and massaged around the regions’’. The AA has delivered a similar warning. In its submission on the regional fuel tax, it said it was ‘‘extremely concerned’’ about the risk of price spreading, warning that if motorists believed the costs were being apportioned elsewhere, the credibility of the tax would be ‘‘fatally undermined’’.

National leader Simon Bridges said that, while initially it was likely that prices would rise in Auckland, sending motorists to stations just outside the affected area, ‘‘over time, you’re at the mercy of the oil companies, which do exactly what you’ve seen’’ in the recent stories on BP.

So Twyford will get his money. But his basis for the tax was that it ‘‘will help ensure that Auckland can pay its share’’ without asking motorists across the country to fund vast projects in Auckland.

For him to believe that, he is putting a lot of trust in the petrol industry – an industry he himself has accused of ‘‘anti-competitive behaviour’’.