Grant Chapman (SA, Liberal Party) Share this | Hansard source

The issue of petrol prices is not one issue but many. Australia now has almost 15 million vehicles. To the Australian motorist, prices go up and down like a roller-coaster. The parameters of supply and demand have changed profoundly. Instability and violence in producer countries together with natural occurrences such as cyclones render crude oil prices unstable, and Australia’s high fuel-quality standards add to the range of complex factors behind petrol prices. That is why the economics committee inquiry on petrol prices in Australia was timely and useful. The committee received 75 submissions to this inquiry and held public hearings in diverse locations, including the Matilda roadhouse at Kybong near Gympie in south-east Queensland and national metropolitan centres.

Petroleum is an internationally traded commodity and hence it is factors outside the direct control of domestic oil companies that influence the price of petroleum products in Australia. These factors include the international price of crude oil, the changing balance between supply and demand in the Asia-Pacific region, fluctuations in the United States and Australian dollar exchange rate and increased Australian fuel standards. Australian oil companies exercise some control over some margins contained in the price of petrol, although not the refiner margin freight costs. Petrol price cycles affect the community in different ways. Many Australians are acutely aware of prices and will take action to benefit, such as driving across town to purchase petrol from a lower cost supplier or buying petrol only on certain days of the week.

Regulating petrol prices would cause fewer fluctuations in the price at the pump and at the same time address consumer concern about price cycles; however, it would interfere with competition in the market and reduce the extent of market fluctuations both at the higher and lower ends of the market. The benefit currently gained by customers who purchase petrol at the lowest points in the price cycle would be lost.

Capping the price of petrol is not a suitable option. The ACCC has reported that 60 per cent of petrol is purchased at the lower price points in the cycle, so it stands to reason that petroleum retailers and oil companies compensate for losses sustained by selling the remaining 40 per cent of petrol during higher price points in the cycle. Capping the price of petrol would potentially inhibit the lower range of the cycle because of the diminished capacity to recoup losses through higher prices at other points in the cycle.

Regulating the price of petrol would certainly lead to a flattening of the band in which petrol prices fluctuate. It would also likely result in an overall increase in the price that consumers pay for petrol. Petrol price cycles, as with other market force influenced commodities, are not fundamentally undesirable, and, as argued by the ACCC at our hearings, attempts to remove the price cycles would be to the detriment of consumers.

This is reflected in Western Australia’s Fuel Watch regulatory system, which compels retailers to notify their next day’s retail price for each fuel type by 2 pm. Price boards and bowser prices are changed by the retailer at 6 am and must remain unchanged for 24 hours. The ACCC cautioned that, while Fuel Watch provides transparency in petrol pricing, the 24-hour notification rule may have a negative impact on competition in the market because it limits the price reduction available immediately to customers in other states and that occurs in other states to a next-day basis where the Fuel Watch system applies, as it does in Western Australia. This point was reinforced to the committee by Mr Gerald Hueston, the President of BP Australia, who commented that Fuel Watch slows the speed with which the cycle moves, both up and down, and effectively masks whether it is competition or regulation which is driving price change. When that competition is masked or diminished by regulation, such as with Fuel Watch, then consumers are the losers, since it is competition which has been shown to lead to consumers getting a better deal.

The ACCC, which brought an independent and expert view to the consideration of the issue, is sceptical about the claimed benefits of the Western Australian system. In the end no clear, substantive evidence was presented to the committee that the Fuel Watch system in WA, other than being an informative source in relation to daily fuel prices, has any bearing on lowering prices in the market.

The dynamics of the Australian petrol industry have changed over the past decade or so. The market has moved from highly regulated to deregulated with few competitors at wholesale level, as well as a smaller number of retail outlets, while retaining sufficient competitive forces to place downward pressure on retail prices for consumers. The committee found no persuasive evidence that the industry currently reflects anticompetitive conduct. Parallel pricing in the industry is not indicative of collusion and is in fact indicative of vigorous competition. The committee found no persuasive evidence of misuse of market power and concluded that, taking into account the international actors, retail prices for fuel are not unnecessarily high.

The matter of taxes and excise on petrol attracted a significant amount of interest during our inquiry. While taxes comprise a third of the total cost of petrol at the pump, Australia has the fourth lowest level of taxation in the OECD—and hence the fourth lowest petrol prices in the OECD, a fact not widely understood by Australian consumers. Evidence to the committee reflected a double-edged sword debate as to whether taxes should be reduced to combat the rising price of petrol or, alternatively, if petrol taxes should be restructured to encourage less reliance on petrol. Removing GST from petrol or reducing excise is at best a short-term measure. Alternatively, increasing excise will hurt consumers even more. Effort would be better directed to promoting public understanding and awareness of how petrol consumption can be reduced.

Calling for an increase in the level of petrol taxation on environmental grounds is an isolationist view. Appropriate and balanced environmental policy making demands a holistic approach, and the committee has not been persuaded that increasing taxation on petrol, thereby hurting consumers, will be significant in improving environmental outcomes sought by those who advocate that cause. Other inquiries have consistently found that consumers living outside of metropolitan areas pay more for petrol and that the differentials can be especially higher during a time of rising prices.

I spoke earlier of the roller-coaster of petrol prices and the many factors contributing to this. The higher freight costs associated with longer transportation distances do contribute in part to the differential, but this is not the sole cause. Lower sales and the relative absence of competitive pressures in local markets, both on retail and wholesale prices—as well as the reality, for people who live in many rural, regional and remote communities of Australia, that fuel is simply a nondiscretionary commodity—also have an impact. It is the sum of these influences that lead to country consumers paying more for petrol, and the committee acknowledges that these are only someway offset by lower rent and property prices and that, in the end, sustained high petrol prices are particularly painful to those in country areas. Rising petrol prices hurt consumers and certain industries, more so when significant and rapid spike increases occur. The widespread lack of understanding about the factors behind steep rises leads to suspicion that oil companies, together with petrol retailers, use events such as conflict in the Middle East as an opportunity to significantly and collusively raise prices and, consequently, profit margins.

In view of the fact that I understand Senator Brandis is now able to speak, I seek leave to incorporate the balance of my remarks in Hansard subject to showing them to the Opposition Whip.

Leave granted.

The rest of the speech read as follows—

There is also a lack of understanding of the overarching importance of international factors and how these influence the petrol price.

Finally, there is a lack of understanding in the community that active monitoring of, and reporting on the petroleum industry at all levels: refining, wholesale and retail, is occurring currently and is effective.

None of these factors led us to conclude that increased government intervention in the market would provide gain to consumers. Indeed, evidence to the committee was that an unregulated petroleum market helps ensure the long-term viability of Australia’s domestic refining industry.

The findings of the Committee were that there are clearly many benefits to be derived from a ‘free market’, that is one which is largely unregulated and where prices are set by market competitors according to the forces of supply and demand.

This ultimately leads to Australians paying more competitive prices.

It does not however address the widespread lack of understanding to which I earlier referred, nor does it mean that we can step back from ongoing monitoring to recognise and remove anticompetitive and predatory behaviours in the market, if and when they arise. These are ongoing matters for government and regulatory agencies.

Capping petroleum wholesaler and retailer profit margins, implementing artificially controlled prices, or restructuring petrol taxes do nothing to address the factor which most influences petrol prices, that is the import parity price which is set on the international market and, consequently, is outside the sphere of control of Australia’s petroleum industry.

The conclusion, therefore, is that the action which must be taken by government is to ensure the presence of a market which is healthy, competitive and free from interference.

At the same time the Government should facilitate understanding of petrol prices in the community and offer specific advice and information to those who live outside of metropolitan areas and are unable to take advantage of the benefits of market fluctuations.

I commend the secretary of the committee, Peter Hallahan, and the staff of the secretariat on the work that they have undertaken in relation to this Report.