"Rising petrol prices do not produce a tax windfall for the Government. They actually mean less revenue," Finance and Revenue Minister Michael Cullen said today.

"The first effect of higher prices is that people try to reduce their petrol consumption. That means less excise tax revenue because excise tax is collected on volume rather than value.

"The second effect of higher petrol prices is that people cut back their discretionary spending in other areas to offset the increase in their petrol budget.

"This means that, although the Government may collect more gst on petrol, it will collect less on other items.

"So the revenue effect for the Government is neutral on gst and negative on the excise," Dr Cullen said.

Dr Cullen was responding to speculation that the increase in petrol prices was bringing in more money for the Government, creating scope for a reduction in petrol tax.

"Unfortunately, that is not how it works," he said.

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