Reasons why Cullen is right about not cutting GST on petrol

I am really pleased to see that the Government is not abandoning rationality and succumbing to polls showing people want them to reduce taxes on petrol. Of course people will say they want taxes reduced on almost any item they regularly purchase.

Let us deal with the call for getting rid of the so called tax on a tax or GST on petrol excise.

There may have been a case for this, when the petrol excise went into the consolidated fund but it now basically all goes into the land transport fund. It is a form of user pays. We don’t yet have the technology to charge people for their actual road usage, so the petrol tax is a substitute for it.

Now let us say we did have the technology to charge people directly for their road usage. Well when you get a monthly bill from Transit for your road use, that would of course have GST on it. So why should it be different when you pay for your road use via petrol tax?

Cullen is also right that higher petrol prices are now resulting in more GST revenue for the Government. The extra GST people pay on petrol will be matched by less GST collected in othe areas as people reduce spending to compensate.

Finally the effect of removing GST on the excise tax component of petrol would be a one off gain to consumer that could disappear without people noticing it. A 6c reduction means little when prices are $1 higher than what they used to be. It is tinkering at the margins.