Cut in motor fuel prices economic dreamland

rodento

Just read this article in the journal

http://www.thejournal.ie/noonan-ff-is-in-economic-dreamland-with-plan-to-cut-fuel-prices-427608-Apr2012/

Are FG actually saying that cutting fuel prices will take money out of the economy:eek:

The Minister for Finance said the proposal would take €150 million out of the economy and would mean the budget for the year would have to be dismantled.

Would have thought that a cut in fuel price would stimulate the economy by reducing overheads and costs instead of using fuel as a nasty little tax earner

Dannyboy83

It's quite clear at this stage that the government have no interest in real reform or in building a sustainable economy.

That's the furthest thing from their minds.

This is merely a box ticking administration.

They will do whatever is necessary to get the boxes ticked - with no regard for the consequences of how that is achieved, much like a boxer trying to make weight for a fight by giving himself bad food poisoning and severe dehydration.

It's the worst form of governance imo, because it usually results in a dramatic reaction.
I imagine that dramatic reaction is going to be something along the lines of very hard swing to the right featuring a strong anti-europe bias.

ardmacha

Are FG actually saying that cutting fuel prices will take money out of the economy

When have you been recently? We have a large deficit, any tax reduced will have to lead to a tax increased somewhere else.

km79

Well speaking from personal experience My wife and I have cut back on weekend trips into Galway to visit relations . We ant afford to at moment running 2 cars for work. If there was a reduction of say 10c a litre we would travel more at weekends. As regards taking money out of the economy all I can say is there are no retail outlets in our house at the weekend !!! What is lost in taxes will be made up by people travelling into towns ....

Scofflaw

rodento wrote: »

Just read this article in the journal

http://www.thejournal.ie/noonan-ff-is-in-economic-dreamland-with-plan-to-cut-fuel-prices-427608-Apr2012/

Are FG actually saying that cutting fuel prices will take money out of the economy:eek:

The Minister for Finance said the proposal would take €150 million out of the economy and would mean the budget for the year would have to be dismantled.

Would have thought that a cut in fuel price would stimulate the economy by reducing overheads and costs instead of using fuel as a nasty little tax earner

What are the benefits to the Irish economy of people using more fuel, if that's what they choose to do with the money? All our fuel is imported, so using more of it does nothing to improve our domestic economy.

Actually, looking again at what he says, and what km79 says, I'd say his case is pretty strong. If people have cut down on fuel use itself because of fuel prices, then they're cutting down on a foreign import and improving our trade balance, which is one of our few current positives. If the response to reducing fuel prices is to use more fuel, that's of no benefit to the Irish economy - the extra money leaves the country. Less fuel use and more tax on it means more money staying in the Irish economy - and conversely, more fuel use and less tax on it actually means less money staying in Ireland.

Who knew? Although with Fianna Fáil recommending it, there was always a good chance it was a move both popular and damaging to the economy.

contrarily,
Scofflaw

rodento

Does law of diminishing returns not also apply in this case

andrew

rodento wrote: »

Does law of diminishing returns not also apply in this case

The law of diminishing returns with regard to taxation is described by the Laffer curve.

The idea of taking money out of the economy/leaving it in the economy is a bit strange though.

Actually, looking again at what he says, and what km79 says, I'd say his case is pretty strong. If people have cut down on fuel use itself because of fuel prices, then they're cutting down on a foreign import and improving our trade balance, which is one of our few current positives. If the response to reducing fuel prices is to use more fuel, that's of no benefit to the Irish economy - the extra money leaves the country. Less fuel use and more tax on it means more money staying in the Irish economy - and conversely, more fuel use and less tax on it actually means less money staying in Ireland

The price elasticity of fuel is low. That means that people's consumption in response to a price change is low; be that a positive or a negative price change. And so I don't think that reducing the price of fuel will cause people to suddenly consume a lot more of it; they're already consuming as much as they need in spite of the price increase. If the price of fuel falls and the quantity consumed is relatively fixed, it just means that people have more money, and the government have less money; I don't think they money would 'leave the economy.' And I's trust people to spend money more efficiently than the government.

Scofflaw

andrew wrote: »

The law of diminishing returns with regard to taxation is described by the Laffer curve.

The idea of taking money out of the economy/leaving it in the economy is a bit strange though.




The price elasticity of fuel is low. That means that people's consumption in response to a price change is low; be that a positive or a negative price change. And so I don't think that reducing the price of fuel will cause people to suddenly consume a lot more of it; they're already consuming as much as they need in spite of the price increase. If the price of fuel falls and the quantity consumed is relatively fixed, it just means that people have more money, and the government have less money; I don't think they money would 'leave the economy.' And I's trust people to spend money more efficiently than the government.

Yes, that's true. I'm not sure exactly what the price elasticity of fuel is in Ireland, though. Anecdotally, there's a lot of "unnecessary" journeys. And looking at average mileage in Ireland suggests that the elasticity, at least in private car terms, is actually pretty elastic:

Compared to our previous article we can see that in 2012 petrol cars have averaged 9,470 miles per year, significantly lower (-761 miles) than our 2010 result of 10,232 miles. Diesel cars in 2012 have averaged 13,190 miles per year, also significantly less (-419 miles) than our 2010 figure of 13,610 miles***

http://nmr.ie/2012/02/average-mileage-in-ireland-2012/

So I wouldn't be too quick to dismiss the idea on the basis that "fuel use is relatively inelastic" as a piece of standard economic thinking. An 8% drop in average yearly mileage is significant, although I haven't looked at the corresponding fuel price rise.

cordially,
Scofflaw

Tipp Man

Scofflaw wrote: »

What are the benefits to the Irish economy of people using more fuel, if that's what they choose to do with the money? All our fuel is imported, so using more of it does nothing to improve our domestic economy.

Actually, looking again at what he says, and what km79 says, I'd say his case is pretty strong. If people have cut down on fuel use itself because of fuel prices, then they're cutting down on a foreign import and improving our trade balance, which is one of our few current positives. If the response to reducing fuel prices is to use more fuel, that's of no benefit to the Irish economy - the extra money leaves the country. Less fuel use and more tax on it means more money staying in the Irish economy - and conversely, more fuel use and less tax on it actually means less money staying in Ireland.

Who knew? Although with Fianna Fáil recommending it, there was always a good chance it was a move both popular and damaging to the economy.

contrarily,
Scofflaw

Have you your green hat on now instead of your economic hat?

What about the cost of fuel to industry and how it is making our exports uncompetitive? It is also raising the cost of living in this country - on a local scale if the cost to deliver goods to shops increases then the cost of the goods increase

andrew

Scofflaw wrote: »

Yes, that's true. I'm not sure exactly what the price elasticity of fuel is in Ireland, though. Anecdotally, there's a lot of "unnecessary" journeys. And looking at average mileage in Ireland suggests that the elasticity, at least in private car terms, is actually pretty elastic:



http://nmr.ie/2012/02/average-mileage-in-ireland-2012/

So I wouldn't be too quick to dismiss the idea on the basis that "fuel use is relatively inelastic" as a piece of standard economic thinking. An 8% drop in average yearly mileage is significant, although I haven't looked at the corresponding fuel price rise.

cordially,
Scofflaw

Turns out there's a recent ESRI paper which estimates the price elasticity of demand for petrol and diesel; it's -0.315 for Petrol and -0.443 for Diesel (pages 34 and 35). According to wikipedia, the petrol PEoD is similar to that of cigarettes, for example. The percentage change in demand due to a price change is less than the percentage price change, so demand is inelastic (where 0 would be a good whose demand doesn't change with price at all).

Dannyboy83

Tipp Man wrote: »

What about the cost of fuel to industry and how it is making our exports uncompetitive?
It is also raising the cost of living in this country - on a local scale if the cost to deliver goods to shops increases then the cost of the goods increase

Industry is the obvious one.
What about the havoc it's wreaking on tourism?

Tourism numbers back at 1998 levels
http://www.rte.ie/news/2011/0111/tourism-business.html

ardmacha

What about the havoc it's wreaking on tourism?

The damage to tourism from oil prices is caused by high air fares, not what the government does.

What tax do you propose that would be less damaging?

Dannyboy83

Scofflaw wrote: »

http://nmr.ie/2012/02/average-mileage-in-ireland-2012/

So I wouldn't be too quick to dismiss the idea on the basis that "fuel use is relatively inelastic" as a piece of standard economic thinking. An 8% drop in average yearly mileage is significant, although I haven't looked at the corresponding fuel price rise.

It seems like we are going down the same road as we've taken with cigarette smuggling, with no net benefit to the exchequer.

http://www.boards.ie/vbulletin/showpost.php?p=76558371&postcount=23

If you read pages 18-22 of this report:
http://www.revenue.ie/en/about/publications/statistical/2010/excise.pdf
Excise Duty from fuels was €2.1 billion in 2007. Even with price and tax increases that had fallen to €2.0 billion in 2010 because of lower consumption. The Carbon Tax brought into about €0.2 billion so receipts rose by €0.1 billion

Factor in to the above, the recent surge in fuel smuggling:

http://www.thejournal.ie/almost-160000-litres-of-illicit-fuel-seized-in-countrywide-raids-271087-Nov2011/
CLOSE TO 160,000 litres of illicit fuel has been seized by Revenue officers and armed gardaí in a series of raids on petrol stations.
.
.
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In a statement, the Revenue Commissioners said that the illegal trade in oil and fuel laundering represent “a serious threat” to the Exchequer.

http://www.irishtimes.com/newspaper/...300030694.html
During the boom, when fuel prices were low and most people were not under financial pressure, the illegal fuel laundering market contracted.

In all of 2009 and the first half of 2010, for example, there were no finds of illegal laundering plants in the State. But in the first five months of this year, investigations by the Garda and Revenue’s Customs officers uncovered five illegal plants. The last one was found a month ago in Co Monaghan, and was the biggest ever discovered in the State. It was capable of laundering an estimated 20 million litres of fuel annually at a cost of some €11 million per year to the Exchequer in taxes and duties forgone.

http://insideireland.ie/2011/07/21/f...onaghan-25703/
An illegal fuel laundering plant has been discovered in Ballybay, Co Monaghan.
The plant was hidden among bales of straw in a shed.
It is the eighth significant fuel-laundering discovery made this year; four of which were in Monaghan.

http://www.independent.ie/business/p...s-2989681.html
AA Ireland, which compiled the data, has accused the Government of making a bad situation worse.

"It was a policy of the last Government (increasing prices), it was wrong then and it's still wrong now," AA Ireland's Conor Faughnan told the Irish Independent.

"In terms of its practical effect, it sucks money out of the pockets of ordinary families and the more it does that, the more damage it does to the economy. Ultimately, it ends up costing the exchequer money rather than making it."

Mr Faughnan claimed the Government had scored an 'own-goal', citing falling petrol consumption as evidence.

"In 2011, the total amount of fuel sold in the country was down by about 6 or 7pc in response to rising prices. That means the exchequer take is also down.

"When you look at the net effect of that policy it is to reduce trade, to reduce VAT receipts, to reduce sales and ultimately the Government is collecting less money, not more," he said.

A senior government spokesman has conceded that the increase is having a negative effect on consumers.

A spokesman for Transport Minster Leo Varadkar said the minister accepted that the cost of living would be affected.

Dannyboy83

ardmacha wrote: »

The damage to tourism from oil prices is caused by high air fares, not what the government does.

Partially, but not entirely
High air fares are partially caused by the government anyway according to the airlines
But Fuel price increases are inflationary, and the current cost of petrol for example is (3:2 Tax:commodity price).
This drives up the cost of everything and this is already a very expensive country.

It seems like there is a very long and wide ripple what the government are doing.

According to Constantin Gurgdiev:

http://trueeconomics.blogspot.com/2012/01/1312012-irish-household-income-and.html

2011 is forecast to see gross disposable income of Irish households drop 2.9% yoy on 2010 and reach -14.2% cumulative fall on the peak at 2008

Gross Household domestic income has fallen 14.2% since 2008.
Yet we now pay 70% more per litre than we did in 2008... (3:2 Tax:commodity price)

What tax do you propose that would be less damaging?

Why not have Higher income tax, Lower vat and Lower fuel duties?


I was under the impression that consumption charges were one of the factors which led to the Celtic Pyramid imploding - Not a stable source of income.

maninasia

It knocks a bigger hole in discretiionary consumer spending and that is a significant factor in the overall economy.
It also bumps up costs for businesses, it's a tax on many of their activities. This means they have to reduce costs some other way, maybe by redundancies.
It makes it uneconomic to commute, while it makes people live in a more sustainable dense fashion eventually the lack of mobility due to mortgages and job centers being far away and very poor public transport options means it could cause a severe short term wrenching effect, IE people simply cannot afford to get to a place of work , rates of default will increase.

antoobrien

A quick look at the excise figures will tell you that as prices go up consumption falls. In 2007 excise on petrol was 44.27c/l (119.4c/l avg), in 2010 it was 54.32c/l. There was a 2.8% drop in petrol consumption in 2008 (vs 2007, excise up 6 c, 111.5c/l avg). In 2009 there was a further 8.36% drop in consumption (no change, 118.8c/l avg). In 2010 there was a further 8.8% drop in consumption (4c/l extra excise, 131.3c/l avg).

For 2007-2009 the excise receipts for petrol were are €1,051,267,715, €1,046,774,862 & €1,075,053,911 respectively.

When the average price broke the 131c/l barrier the excise receipts were €981,816,568.


A quick look at the diesel take indicates a drop in use while the excise take is down €40m since 2007. So the loss in jobs (construction related activities would be a big diesel user) hasn't been offset by the switch to diesel cars.

Its clear that as the prices have increased fuel consumption has dropped, so has the excise take.

ardmacha

In 2007 excise on petrol was 44.27c/l (119.4c/l avg), in 2010 it was 54.32c/l. There was a 2.8% drop in petrol consumption in 2008 (vs 2007, excise up 6 c, 111.5c/l avg). In 2009 there was a further 8.36% drop in consumption (no change, 118.8c/l avg). In 2010 there was a further 8.8% drop in consumption (4c/l extra excise, 131.3c/l avg).

It is not as simple as this. In 2009 there was a drop in consumption of almost everything in the Irish economy, including many things whose price had not changed or even dropped. If people become unemployed, and have no need to drive to work in the morning, then consumption drops.

Also the level of consumption reflects the price differential with Northern Ireland, not just the amount people drive.

creedp

ardmacha wrote: »

It is not as simple as this. In 2009 there was a drop in consumption of almost everything in the Irish economy, including many things whose price had not changed or even dropped. If people become unemployed, and have no need to drive to work in the morning, then consumption drops.

Also the level of consumption reflects the price differential with Northern Ireland, not just the amount people drive.

High prices are part of the problem though, the high price of fuel is dampening the incentive for people to leave welfare and take up paid employment and in addition is dampening domestic demand as people are simply not using their cars for discretionary journeys such as heading to the shops! Cutting fuel duties is adouble edged sword and given that the Govt has increased VAT in a depressed domestic economy I can hardly see them reducing fuel duty.

Tipp Man

any person without an enviromental agenda can see that the price of fuel is excessivly high and will clearly damage the economy

What the government should do is say that the price of petrol should be fixed at say 1.25 for argument - so as the price of oil increases the proportion of tax they take from it will fall - and as oil falls the proportion of tax rises. This could be reviewed annually or if oil goes above (or unlikely as it is below) certain extreme perameters

This would give a huge boost to industry as they can budget with confidence their fuel costs for the year.

Dannyboy83

antoobrien wrote: »

Its clear that as the prices have increased fuel consumption has dropped, so has the excise take.

And in the past four years the number of seizures of illegal fuel from stations has increased almost six-fold.
http://debates.oireachtas.ie/dail/2012/01/11/00102.asp

liammur

Tipp Man wrote: »

any person without an enviromental agenda can see that the price of fuel is excessivly high and will clearly damage the economy

The same can be said of car tax, water charges, VAT increases, universal social charge etc

Noonan is right in this instance, it's a cheap attempt to try and win some support by FF, when they were in power, they too increased fuel.

antoobrien

ardmacha wrote: »

It is not as simple as this. In 2009 there was a drop in consumption of almost everything in the Irish economy, including many things whose price had not changed or even dropped. If people become unemployed, and have no need to drive to work in the morning, then consumption drops.

I know, just as you're ignoring the fact that the fleet is newer, more fuel efficient, there's been a switch to diesel.

And on top of all that there's the u word.

Take a look at the figures though - all the tax increase in excise since 2007 has done is to keep the level of excise at/about the 2007 take. For petrol that take is starting to drop. It'll be interesting to see what happens with the 2011 takings (when revenue get around to publishing them).

ardmacha

Take a look at the figures though - all the tax increase in excise since 2007 has done is to keep the level of excise at/about the 2007 take. For petrol that take is starting to drop. It'll be interesting to see what happens with the 2011 takings (when revenue get around to publishing them).

Exactly. The government is not taking any more tax from this source than ever it was, despite all of the whining.

Dannyboy83

ardmacha wrote: »

Exactly. The government is not taking any more tax from this source than ever it was, despite all of the whining.

I think you mean, the same proportion, but as I already posted, the GHDI has dropped 14.2% since 2008, while the cost of fuel has increased 70% since 2008...

http://www.irishtimes.com/newspaper/property/2012/0419/1224314920494.html
The rising price of fuel means that one couple’s total spend on petrol for the year now equates to about four mortgage payments

antoobrien

ardmacha wrote: »

Exactly. The government is not taking any more tax from this source than ever it was, despite all of the whining.

So despite the cynicism of the minister and many of the posters (myself included) here about the intention of the claim, there may be some merit to the idea.

A 1c/l drop on excise on petrol will lose them about 10m in taxes (excise & vat) if the 2010 figures are to be believed. They part could pay for it by breaking the pay links between the Dail & Seanad with civil service and cutting the pay & expenses by 10% (that'd give 1.6m from the TDs pay alone).

Those two tokens would give a lot of positive publicity (the latter more than the former) to the government.

antoobrien

Dannyboy83 wrote: »

I think you mean, the same proportion, but as I already posted, the GHDI has dropped 14.2% since 2008, while the cost of fuel has increased 70% since 2008...

http://www.irishtimes.com/newspaper/...314920494.html
The rising price of fuel means that one couple’s total spend on petrol for the year now equates to about four mortgage payments

That couple would be the exception - the average distance traveled to work (presumably one-way) is about 16km.

rodento

Just to put things into context

Average family fuel costs this year is 3000

http://www.independent.ie/business/personal-finance/latest-news/filling-family-car-to-cost-more-than-3000-this-year-3090787.html

That's with an average of 50% tax rate, a 1500 family tax