Cullen right on petrol tax

Dr Cullen is right to resist calls to cut the petrol tax. The petrol tax now goes 100% towards land transport programmes, so any reduction in it will mean either more congestion or that motorists get subsidised for their car use which would be wrong.

And frankly a 10c cut would be hardly noticed with price spikes almost that large on a weekly basis.

While I reject ad hoc changes to the petrol excise tax, I do think Don Brash’s idea of allowing the Reserve Bank to vary the level of the tax as a complementary tool to adjusting the cash rate is worth investigating. So long as the adjustments are revenue neutral over time (ie it is done not to change the average price of petrol but to allow the Reserve Bank to dampen the economy down without hiking interest rates so high) it is worth considering. What I would like to see if an economist calculate how much the excise tax would have to move up or down to have an equivalent impact on the economy to a 25 point movement in the cash rate.