Government claims wrong, Wilson concedes that fuel tax is regressive

Increasing fuel taxes impact more on people on lower incomes who rely on a car for transport.

On Thursday in the Herald Simon Wilson wrote what looked like virtual Government media release- $5.77: The extra amount Aucklanders will pay for fuel every week, according to Transport Minister Phil Twyford

Finance Minister Grant Robertson will join Transport Minister Phil Twyford and Associate Transport Minister Julie-Anne Genter this afternoon in Auckland to reveal the details of the new excise levies on fuel.

But it looked like they had already revealed the details to Wilson.

By late 2020, new fuel taxes will mean Aucklanders are paying an average $5.77 more a week for petrol, according to figures to be released by Government ministers today.

And in a startling revelation, the ministers claim that the wealthier a household is, the more it is likely to pay for petrol. They say the wealthiest 10 per cent of households will pay $7.71 per week more for petrol. Those with the lowest incomes will pay $3.64 a week more.

That is a quite misleading use of averages. A much bigger proportion of lower income people don’t use cars, for example many students. This distorts the averages.

This is a complete reversal of the most common complaint about fuel taxes, which is that they are “regressive”. That means, the critics say, they affect poor people more than wealthy people.

Opponents of the new fuel taxes, including several councillors and the National Party Opposition in Parliament, have argued that low-income people rely more on their cars than wealthy people. They also say those on low incomes have less access to public transport and drive cars that are larger and less fuel-efficient.

But the Government’s figures starkly reject that view.

But this view was strongly debunked in social media.

David Farrar at Kiwiblog: Not a startling revelation

The data is not a reversal of the complaint about the fuel tax. In fact it proves the complaint.  Let’s look at the definition of regressive:

(of a tax) taking a proportionally greater amount from those on lower incomes.

Now let’s look at the average incomes for each decile

  • Decile 1 – under $23,900
  • Decile 5 – $64,400 to $80,199
  • Decile 10 – over $188,900

So the extra fuel tax as a percentage of income is:

  • Decile 1: 0.52%
  • Decile 5: 0.27%
  • Decile 10: 0.14%

So the article proves the exact opposite of what it claims – that the increase in fuel tax is regressive as it hits lower income households more.

It was also covered by @Economissive on Twitter:

I have some other work I must get done today, but once that’s out of the way I am going to do what Simon Wilson never does and that’s fact check this appallingly bad analysis by the Ministry of Transport and proudly supported by the Minister.

Here’s the big thing the , and have missed: many low-income people don’t own cars.

Students are low income. How many of them own cars? What proportion as compared to say rich professionals? Students generally live near uni and work. They walk or bike or take the bus.

What matters is how much households with cars pay! And the Ministry, Minister and Wilson haven’t provided that data!

THE POOR PAY MORE FOR EACH KILOMETRE. I can’t say this more clearly enough. And have said so for months and months. It is a regressive charge.

Wilson copped a lot of flak on Twitter for his claims (and his acting as an uninquiring repeater for the Government). Last night he conceded:

Hi does  say so today at the hHerald, but it is buried in another Government friendly article – The fuss about fuel taxes and the next big transport debate

He starts by quoting a councillor. Then he rephrases his ‘wealthy people pay more for fuel than poor people’ averages spiel.

What will wealthier people pay? On average per household, they drive more, and as the pump prices suggest, they probably pay more for their petrol too. The wealthiest third of households will face an average fuel price rise at least double that of the poorest.

That might come as a surprise to anyone used to hearing that “fuel taxes hurt the poorest more”, but it shouldn’t. Wealthy people spend more on almost everything.

He follows that with an admission rising fuel taxes will hit poorer people more.

Despite that, however, it is true that these fuel taxes will hurt low-income households more. Low-income households spend a bigger proportion of their money on essentials, including transport costs. So every price rise eats into their disposable income, assuming they even have any.

Wealthier people might not notice having to spend $5 or more a week of something. But many others have to count every penny.

Another factor: people in poorer households are more likely to use public transport, thus not paying for petrol at all. Those who do drive may be travelling further than many wealthier people, and in less fuel-efficient cars too.

And what often happens to the cost of public transport when the cost of fuel rises?

Then Wilson’s brief regression concession.

I wrote earlier this week that the fuel price rises are not regressive. That was wrong. Wealthier people will pay more overall but this will impact them less. The fuel taxes are flat taxes: we all pay the same per litre. And all flat taxes are regressive, for the reasons just outlined.

He then seemed to switch back to promoting Government PR:

On Thursday, finance minister Grant Robertson put the fuel price rises in the context of other changes the Government is making to household incomes. The minimum wage is rising. The Families Package includes a winter energy payment for the elderly and some others on benefits, a means-tested payment for babies and changes to lower-income family tax credits. All of these changes come into effect from July 1, the same day as the council’s regional fuel tax.

Robertson said hundreds of thousands of families would be $75 a week better off, on average, by 2020/21 when the Working for Families measures have been fully implemented. That’s far more cash in hand than the fuel taxes will take away.

But this time Wilson questioned it.

That’s true, but those measures also compensate for many costs facing lower-income families, especially as the Government is not introducing the tax cuts promised by the previous Government.

What he and Robertson didn’t mention is that, while people with families will get more money again from the Government, people without dependant children don’t get Working for Families. And many low income workers have been getting low wage increases for years, and that looks unlikely to change markedly for many.

All income earners are slowly paying higher rates of income tax – the last Government belatedly addressed this by lowering tax rates, but the Labour led Government quickly scrapped them.

I won’t get anything from the above mentioned financial benefits, and neither will many people. Fortunately for me I won’t get the fuel price increase that is being introduced in Auckland, just the smaller country-wide excise tax increase.

And I am an average earner so that won’t impact much. Thinks will get tougher for low income workers in Auckland who don’t have dependent children but who rely on a car for transport, especially if it’s an older less efficient car. Transport owner operators will also have to contend with rising fuel expenses.

Wilson:

All of which points to a hidden issue in all this: what public transport improvements will really make a difference? Should buses and trains be cheaper or more frequent? And why can’t we have both? Lets argue about that.

That’s a bit of a diversion from his repeating for the Government. Perhaps he could look at another hidden issue, the growing divide between workers with families and workers with no dependant children.

What is happening, and it has been for some time, is that workers without children are gradually getting worse off, and there is no sign of that changing.