Monday, May 19, 2008

Shadenfraud with Dr Nelson

From Today's SMH

The Climate Institute has released research showing richer households have more cars and use more petrol than poorer households, so have the most to gain from an excise cut.

In 2005, an average low-income family spent $28 a week on petrol or diesel, while a high-income family spent $62.

Nearly a third of low-income households had two or more cars compared with 84 per cent of rich households.

The institute says dropping the fuel excise will also boost demand for petrol and add to pollution by creating the impression of a permanent price drop.

To genuinely help shield lower-income earners from rising prices, the government should use better-targeted and more effective policies than cutting the fuel excise, the institute said.

Boosting public transport and lifting fuel efficiency standards would be a good start, it said.

According to Phillip Coorey in yesterday's SMH

Such stunts are the domain of populist, attention-seeking minor parties made safe in the knowledge they will never have to deliver them.

In the short term it may put pressure on the Government. In the long term it threatens the Liberals' economic credibility and creates a huge headache for whoever leads the party to the election.

Nelson framed it as consistent with the Liberal tradition of cutting taxes. He cited Howard's "decisive action" in 2001 to reduce excise by 1.5c a litre and abolish the twice-yearly indexation of excise to inflation.

Bunkum. Howard was motivated by flat panic, not altruism.

He had been caught trying to diddle people by 1.5c a litre when fulfilling his promise to reduce excise to ensure the GST caused no net increase to the price of fuel.

And just as he was caught, world oil prices soared. The GST fiddle was only a minor contributor to the price rise but the electorate blamed it for the lot.

It was an election year and Howard did what he had to do.

Otherwise, Howard always cited as economic madness calls to cut excise in response to rising world prices.

"It is easy to embrace opportunistic calls for reductions in the budget surplus and reductions in revenue," he said in 2000 of calls for a 5c cut.

"In the present climate of international levels of interest rates, of our concern about domestic interest rates, we see no merit at all in running the budget surplus down by the order of $1.5 billion to $2 billion."

An oil sheik need only fart and Nelson's excise reduction would be wiped out by the price fluctuation.

Angry consumers would be demanding another cut while the government was still trying to patch the original $2 billion hole in its budget.

It was a wildly irresponsible promise, especially when a pension increase, now one of the most pressing imperatives and something Nelson also supports, is going to cost billions.

And Milne in The Australian

The anti-Nelson Liberal critique of his formal budget-in-reply speech, which by any test wasn't bad in presentation terms, comes down to this: Nelson's commitment to cut 5c a litre from fuel excise in order to bring down petrol prices ends up with a much greater price tag than its $7 billion to $8billion cost to the budget.

And it is this: the decidedly populist commitment, without immediate offsetting savings, threatens the best political card the post-Howard Coalition still has to play: its credibility as an economic manager.

Those Liberals criticising the Nelson fuel tax initiative point out that it was an easy option continually rejected by cabinet during the Howard era. Why? Because of the huge hit on revenues and the relatively small impact on pump prices.

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