Fed: Import price parity makes cheap Aust oil expensive
By Max Blenkin01 Jan 2009 12:01 AM
Embargoed until 0001 (AEDT), January 1, 2009
CANBERRA, Jan 1 AAP - In 1978, the government of Malcolm Fraser adopted one far-reaching measure which continues to be cursed by Australian motorists every time the fuel price soars.
The frustration felt by motorists is fuelled by a decision to price cheap Australian produced oil at the more expensive world price.
The move was announced by then treasurer John Howard in the budget of August 1978 on the back of an expectation petrol prices would rise by about three cents a litre.
Such a price hike seems modest in an era when petrol typically costs more than $1 a litre, and has recently climbed as high as $1.70 a litre.
But in 1978, petrol prices only reached a maximum of 21 cents a litre and the tax hike was noisily condemned.
Cabinet papers for 1978 - released by the National Archives of Australia under the 30-year rule - show it was expected that imposing a levy to lift the price of all Australian produced oil to international parity would net an estimated $678 million in revenue in 1978-79.
The situation in Australia had been one of confusion, stemming from a decision by the Labor government in 1974 to selectively impose import parity on some Australian oil fields.
In his submission to cabinet, Howard estimated the effect of a lift in petrol prices would lift CPI inflation by between 0.6 per cent and 0.8 per cent.
He saw advantages other than the very substantial increase in revenue.
One was in ensuring future oil exploration in Australia would remain economically viable.
"There would be immediate strong pressure for consumers to conserve their use of petroleum products in a way which would be very much in the national interest," he said.
Howard announced the bad news in his budget speech in August 1978, saying world oil prices quadrupled in the period 1973-74, hitting around $US10 a barrel as Middle East oil producers tightened the screws on the US for its support of Israel in the October 1973 war.
He said Australians had enjoyed artificially low prices for domestically produced crude oil, most coming from Bass Strait.
At the time, Australia produced about 75 per cent of its domestic oil needs.
"While the rest of the world was facing up to the inescapable fact the days of cheap energy were over, Australians were continuing to pay less than half the world price for Australian oil," he said.
"In the light of the budgetary situation and the desirability of improving energy use, the government has decided all Australian-produced crude oil should, from tomorrow, be priced to refineries at import parity levels."
Howard said Australian motorists were still better off than many others, with motorists paying 49 cents a litre in Italy, 44 cents in France and Japan, and 28 cents in the United Kingdom.
Fraser government minister Fred Chaney, the guest speaker at the release of the 1978 cabinet papers, said Bass Strait oil was then $2.35 a barrel, making the move to import parity highly contentious.
Many people then, and some even today, believed that Australia should continue to have its own low price for oil, he said.
Mr Chaney said the prime minister's wife, Tammie, gave the best possible answer to the great concern of many people.
"She told an interview on TV something like this: `The policy must be right mustn't it, because who would do something as awful as that if it wasn't right'."
