Retail Petrol Prices

Petrol prices are volatile, moving daily in most parts of Australia. The movement in petrol prices, especially those relating to retail unleaded fuel prices, has been a topic of political debate for some time. Some of the key issues associated with fuel prices include the level of prices in the context of household budgets, the causes of fluctuating prices of a litre of fuel and the ability of elected officials to influence price movements.

It is impossible to pinpoint the price of a litre of fuel across Australia on any given day because there are about 6150 service stations offering fuel. The Australian Automobile Association publishes monthly unleaded fuel prices for about 113 Australian locations. The table below lists three reference points for these data, including the highest and lowest prices reported for the reference month. An immediately obvious issue with understanding pricing issues is the spread of average pricing between the highest and lowest prices.

Average Australia-wide retail unleaded fuel price

Source: Australian Automobile Association, www.aaa.asn.au\issues\petrol.htm

Assessing fluctuations between periods in this table illustrates the impact of price changes on motorists. For the year to the end of October 2007, the average price rose by 6.1 per cent. Between October 2004 and October 2007, a proxy for the period of the 41^st Parliament, prices rose by 19.7 per cent. By way of comparison, over a similar time period, average weekly ordinary time earnings rose by 4.6 per cent and 14.8 per cent respectively. The key point is that petrol prices have been rising faster than incomes, which inevitably has an effect on household budgets.

The causes of fluctuating petrol prices are many and varied, ranging from the Australian dollar exchange rate, petrol price cycles, international crude oil prices, the impact of weather events and fluctuating margins in the fuel-supply chain.

Decomposing a litre of fuel into its components illustrates some of this complexity. For example, a randomly selected price from Shell of 139.7 cents per litre (cpl), being the average unleaded price of 15 November 2007, can be broken into production costs of 73.7 cpl (52.7 per cent), taxes of 50.8 cpl (36.4 per cent) and retail and wholesale margins of 15.2 cpl (10.9 per cent). From a parliamentary perspective, the ability to influence pricing is limited because the bulk of the retail price is determined in multiple marketplaces. However, there are two legislative instruments that affect the pricing of fuel that parliament can influence.

The Australian Government is responsible for the administration and execution of the Australian Government Excise Tariff Act 1921 and A New Tax System (Goods and Services Tax) Act 1998. The Excise Act applies an excise of 38.143 cents per litre of petrol sold. The petrol excise was indexed twice a year until March 2001. However, the excise rate for fuel is now fixed at the current level. According to the Final Budget Outcome for 2006–07, the excise raised $14.7 billion for the Commonwealth. The goods-and-services tax (GST) applies a 10 per cent consumption tax on the final user of petrol sold in Australia. The actual amount of GST collected on all fuels is not identifiable, but the Parliamentary Library estimates it to be about $2.1 billion a year on petrol.

Other strategies that have been employed to influence, review and understand fuel pricing fluctuations include parliamentary committees and reviews by the Australian Competition and Consumer Commission (ACCC). In December 2006, the Senate Economics Committee reported on a wide-ranging inquiry into petrol prices in Australia. On 15 June 2007, the then Treasurer, Peter Costello, announced an ACCC inquiry into unleaded petrol prices, especially focusing on the interaction between retail and wholesale fuel prices. The ACCC is due to report on its investigations on 15 December 2007.

Future policies and laws that will affect petrol pricing in Australia include those that affect existing legislation, promote alternative fuels such as ethanol and biodiesel, and affect the choice of transport alternatives available to Australians.

Market factors that will continue to affect the price of fuels include the current strength of the Australian dollar against the United States dollar, a strong upward trend in global crude oil prices, and the commercial behaviour of oil companies.

Library documents
Mike Roarty and Stephen Barber, ‘Petrol pricing in Australia: issues and trends’, Current Issues Brief, no. 10, Parliamentary Library, 2003–04.

Documentation
Australian Institute of Petroleum, ‘Pricing’, November 2007.
Australian Automobile Association, ‘Issues for Motorists: Petrol Prices’, November 2007.
Australian Competition and Consumer Commission, ‘Petrol’, November 2007.
Senate Economics Committee, ‘Inquiry into the Price of Petrol in Australia’, Senate Economics Committee, Canberra, December 2006.