One of Australia’s leading economists has blasted the federal government’s ‘nonsense’ fuel excise cuts as a $2.5billion mistake.
Prime Minister Anthony Albanese this week halved the fuel excise on petrol and diesel for three months, saving Aussies 26.3 cents a litre at the bowser to provide cost-of-living relief.
Motorists will get an extra 5.7 cents a litre off after the states and territories resolved a feud over how to return an expected GST windfall to consumers.
The move has seen fuel prices drop in capital cities in recent days, in time for families hitting the road for the Easter long weekend.
But The Motley Fool chief investment officer Scott Phillips is yet to speak to an economist who thinks that the fuel excise cuts are a good idea.
He acknowledged that many Aussie families were doing it tough and did not begrudge them for taking advantage of the savings.
But he believes both the federal government and the Opposition, which lobbied for the excise cuts, are ‘dead wrong’.
‘The problem is that politicians are doing what they love doing, which is kicking the can down the road,’ Mr Phillips told Seven News podcast The Issue.
Scott Phillips described the fuel excise cuts as a $2.5billion mistake
The first problem is that fuel is a supply-constrained good.
‘If you lower a price, you increase demand, you just do,’ Mr Phillips explained.
‘So, we will use more fuel – more constrained fuel – because of a lower price.’
Secondly, the fuel excise cuts will add an additional $2.5billion to the deficit and to government debt, according to Mr Phillips.
That has got to be paid back at some point,’ he said.
‘It’s not huge and it’s worth doing in an emergency, but we’re going to gave to face the consequences.’
The third problem is the effect on inflation that will echo through the economy.
‘The government is adding $2.5billion of stimulus to the economy so that the fuel we’re buying is cheaper, and in doing so, pushes the price up on those products,’ Mr Phillips said.
Aussies will save 32 cents a litre at the bowser until June 30
Many motorists have hit the road this long weekend after fuel prices dropped. Pictured is the Hume Highway in Melbourne on Thursday night
‘It feels good now, but every serious economist knows and believes that the saving you get today, you’ll pay later in higher inflation.
‘In three months time when the excise goes back up, you’ve got to look at the built-in inflation caused.
‘Then the fuel prices go back up, so you’re worse off than when you started back on April 1.’
Mr Phillips also warned the longer the war in the Middle East goes on, the bigger the chance Australia will go into a recession.
‘We cannot escape a recession globally or locally if this drags on for months,’ he said.
‘But I’m cautiously hopeful that the war will end sooner rather than later.’
Mr Phillips is most worried about the impact the war will have on business confidence.
‘If business confidence or turnover is hurt by this, that potentially precedes a reduction in employment and business spending,’ he said.
Scott Phillips is yet to speak to an economist who thinks that fuel excise cuts are a good idea
‘It’s been such an important part of the last two or three years in keeping the economy going.
‘If we can’t keep employment and spending at a business level on an even keel, we probably don’t have a lot of safety nets to fall back on economically over the next six or 12 months.’
As of Saturday, Australia had 39 days’ worth of petrol, 29 of diesel and 30 of jet fuel, amid ongoing strong demand.
‘The fact these figures are effectively flat means fuel is going out the door to service stations and farmers, and fuel is going in the door at Australia’s import terminals and refineries,’ Energy Minister Chris Bowen said.
Despite the long weekend, the number of service stations running out of petrol and diesel has dropped in the last 24 hours.
In NSW, 150 service stations were without diesel, 32 fewer on Friday; in Victoria 51 had run out of diesel, down by 23; and in Queensland 49 were without diesel, down by seven since the start of the Easter break.
‘The total number of service stations without diesel in Australia, which is where the main pressure has been, is 312 out of the around 8,000,’ Bowen said.
He added that Australia will not escape a recession if the war in the Middle East drags on for months
He reiterated the Albanese government’s call for families to stick to their Easter holiday plans but to buy no more fuel than they needed and to buy it in the city to help keep supplies up in the country.
‘Australia’s fuel supply remains strong still; more than 50 ships are on their way to Australia, still only six cancellations of forward orders,’ Bowen said.
New orders have more than replaced the cancelled ones and fuel companies have assured the government they were very confident of the supply of 3.7billion litres booked in for April and going into May.