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Econtech Modelling Shows Industry Cost Savings Will Not Prevent Petrol Prices From Rising

29.6.2000

AAA has released a report undertaken by Econtech which identifies the short and long-term industry cost savings as a result of ANTS. The report also analyses the impact on petrol prices of these savings and the Government’s proposed changes to excise.

The report shows that by the end of 2000, the savings are only 0.4c/l, not 1.5c/l as the Government has indicated.

Even then, only half of this 0.4c/l is attributable to cost reductions in refining and distribution, with the remainder being due largely to exchange rate effects on the price of crude oil.

The analysis is based on a pump price of 87.4c/l, being the average price for Sydney for June.

Using the Government’s reduction in excise of 6.7c/l, the report shows that pump prices will rise by 1c/l by the end of 2000.

The report shows that prices rise by 1.8c/l by the end of 2001 as a result of the GST’s effect on inflation, and thus excise, which is indexed to the CPI.

One key advantage of Econtech’s model is that it can identify savings in the short-term, whereas the Treasury’s PRISMOD model can only calculate long-term savings.

The Econtech model reveals that even in the long-term (ie over 5 years), the cost savings are not sufficient to prevent petrol prices from rising, although they will start to fall (other things being equal) toward current levels by the end of 2005.

The modeling also highlights the fact that a 7.6c/l reduction in excise would ensure pump prices remain unchanged at the end of 2000.

However, pump prices rise again because of the inflationary impact of the GST and then start to fall thereafter as cost savings of 1.8c/l result in prices falling by the end of 2005.

Again, half of these saving are due to exchange rate effects, with only 0.7c/l being attributable to refining, 0.1c/l to transport and wholesale, and 0.1c/l to retailing.

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