Govt should absorb inflationary oil security cost

15 December 2004

Government should absorb inflationary oil security costs

The Automobile Association says it is a Government’s responsibility to meet any costs associated with increasing the nation’s oil supply cushion from 60 days to 90 days rather than passing it on very conveniently at the pump to petrol and diesel users.

“If the cost of extra oil and storage construction is added to the pump price to achieve an extra 30 days of oil stocks, there will inevitably be inflationary pressures throughout the entire economy. The faster the new stockpile is added the bigger that pressure will be. With inflation currently running at 2.5% additional inflationary pressures will clearly result in an increase in the official cash rate, so that households will face the twin effects of both higher transport costs for themselves and the goods they buy, but also higher housing costs,” Mr Fairbairn said.

Mr Fairbairn questioned the need for the haste in determining to increase storage.

“The report states that the socially optimal level of storage to cover for possible risks is in fact lower than the level the Government is pushing for. New Zealand is in the unusual situation of being up to 30 days by ship from the Middle East and typically has that extra socially optimal level of storage on ships heading here at any moment in time. Why is the Government not requesting the International Energy Agency (IEA) to take this into account?” he asked.

Mr Fairbairn said that if the Government wanted to treat the cost of the difference between socially optimal levels of storage and the IEA’s requirement as the cost of IEA membership, then the Government should pay for that added cost, recognising that the end beneficiary is the nation.

“The Government continues to divert over $600 million a year of petrol taxes into its coffers. There is no good reason why motorists alone should meet this proposed added cost at the petrol pump.

ENDS

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