Cut consumption, not fuel taxes
French president Nicolas Sarkozy and Britain’s lorry drivers are unlikely bedfellows but they have something in common: they have both got it wrong in demanding cuts in fuel tax to compensate for rising oil prices.
The problem is that demand for fuel exceeds supply. The rising oil price is the mechanism that will bring those two into equilibrium - encouraging more production and discouraging consumption. Cutting the tax on oil and thus reducing the price to the user will merely stimulate demand and push the untaxed price higher still.
The freight companies are thus wrong to demand a cut in duty to lower the price of fuel and, on a pan-European scale, Sarkozy is wrong to suggest other countries join him in slashing the VAT on fuel sales.
If lorry operators’ costs rise they must increase their own rates or see profits squeezed - just like any other business. It is better that the price of transporting goods rises, even if that translates into higher retail prices, than that the whole country pays a subsidy to hold prices down and keep lorry companies’ profits up.
The only reason freight transport will grind to a halt will be the protesting lorry drivers mounting a blockade. The economics of the industry will not prevent companies from shipping goods across country. If people want things moved they will pay for that service - and if they think the cost too high they may decide to source locally. If it means fewer lorries on the road, then as well as relieving congestion it will cut the demand for fuel and take pressure off the market price of oil.
The same applies to individuals. It is annoying that filling the petrol tank now costs an extra 25 per cent, but if that makes us think twice before driving, then the market is working.
These are tough times for transport companies but subsidies are not the answer - even if the Government could afford them. Competition will ensure the best firms prosper: if any do not, their vehicles will be picked up by those who can charge a price that makes money.
May 29th, 2008 at 2:22 am
Subsidy? A tax cut is a SUBSIDY?!?
The G. D. exorbitant TAX is the real subsidy; a subsidy for the bloated, self-important government blokes (or should that be “brokes”, since their speciality is driving working people broke) which WILL find a way to spend the extorted PROFIT from their one-armed bandit, the petrol pump.
Maybe if some of that money were used to purchase and present a pitchfork and torch to each baby peasant when it’s born, as a future means to keeping your government in line, it would be justified.