AA predicts 'queues to the roads' if petrol tax cut reversed overnight in August
Tuesday, 14 June 2022
New Zealand motorists will be queueing out on to the roads for petrol if the Government reverses its fuel tax cuts overnight in August, the AA has forecast.
AA strategy manager Terry Collins said its members were already “screaming” about the rising cost of fuel, which has seen the average price of ‘91’ climb above $3 a litre this week.
He predicted no end in sight to rising prices and said drivers would rush to fill up their cars in mid-August if the current tax break on fuel came to a sudden end then.
The Government cut taxes on petrol by 29 cents a litre, including GST, on March 14 in the wake of the immediate fallout from Russia’s invasion of Ukraine.
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The tax break was due to end on Tuesday, before the Government announced a two-month extension in the May Budget, meaning August 14 is the earliest that the tax cut could be reversed.
Collins forecast that the Government would need to consider extending the tax cut, or else phasing it out over a period of time to avoid the risk of chaos at the pump just ahead of that date.
“There would be queues going out on to the road. It will be a big decision for the Government to make,” he said.
“We are thinking they may gradually put it back on instead of having a price shock. I think that would be a prudent thing to do.”
However, the cost of extending the tax break would quickly add up, with Budget documents indicating they reduce government revenue by about $27m a week.
The Government separately risks coming under pressure on its debt targets as sliding share markets reduce the value of the NZ Super fund, which is now factored into its headline calculation of Crown debt.
Energy Minister Megan Woods is overseas, but a spokesperson for Woods said the Government was “continuing to monitor” the fuel situation.
Z spokesperson Haley Mortimer declined to say what it thought the consequences would be if the fuel tax break was suddenly removed, saying Z did not comment on “government policy or decisions around taxes”.
Gaspy reported that motorists were paying an average just over of $3.01 a litre for ‘91’ on Tuesday, with ‘95’ at just under $3.20 and diesel at $2.82.
Collins said he was hearing most complaints about the price of diesel, which appeared to be closing in on ‘91’ because of an international shortage.
“There used to be quite a large differential, and now it’s smaller,” AA’s Collins said.
Diesel had reached $3 at some petrol stations, but there were still big variations in the price of fuel both within and between regions, he said.
Rising oil prices have added about 30c to the price of litre of petrol since the start of Russia’s war on Ukraine, while soaring international refining margins have added about a further 35c.
“Refineries are absolutely killing it at the moment,” Collins said.
New Zealand’s own refinery at Marsden Point closed at the end of March, meaning the country is now entirely reliant on imports of pre-refined fuel.
Collins saw no reason to think oil prices would ease either this year or longer term, noting analysts at US bank JPMorgan were forecasting the price of oil could reach US$140 to US$150 a barrel by the third quarter of this year.
“That would add another 20c to 30c on everything. It is a bit of a one-way street, unfortunately.”
The price of Brent crude for August delivery bubbled up about US$2 a barrel overnight on Monday to trade at US$122.50 on Tuesday.
If the Government did not further extend the fuel-tax break, the price of higher-octane fuel would be “hitting $4 before too long”, Collins said.