Australia’s two most senior politicians have made extraordinary and false claims about petrol prices this week.
On Monday, Prime Minister Scott Morrison said petrol prices would go up more than otherwise if his government was kicked out of office. But he provided no evidence to back up his claim – even when asked for it.
Deputy Prime Minister Barnaby Joyce followed up on Tuesday morning, telling ABC radio that Labor would increase petrol prices by ending fossil fuel exports, a move he claimed would devalue the Australian dollar.
There is no evidence for this claim, either. And Mr Joyce’s comments were riddled with falsehoods about Labor’s policies on fossil fuels and climate.
Petrol prices are already rising due to global factors beyond Australia’s control, while future coal exports will be decided by international action on climate change and won’t necessarily devalue the Australian dollar.
With the federal election just months away, The New Daily asked the experts to weigh in on the government’s latest claims about petrol prices.
Morrison’s false claim about petrol prices
Let’s start with the Prime Minister’s extraordinary claim on Monday.
Mr Morrison was asked about rising global inflation and whether it would affect Australian households.
He replied: “Australia’s economic recovery has to be secured by people who have a track record of economic management.
“Otherwise, you’re going to see petrol prices go up. You’re going to see electricity prices go up. You’re going to see interest rates go up more than they would need to otherwise.”
To understand why Mr Morrison’s claim is wrong, let’s take a look at what goes into the petrol prices Australians pay at the bowser.
Australia doesn’t produce its own oil – the vast majority of the petrol that powers our vehicles is imported from massive refineries in Singapore.
This fuel accounts for about 39 per cent of Australia’s weekly petrol bill.
The price of this fuel has soared over the past 12 months amid constrained supplies of oil and a global resurgence in road traffic after COVID lockdowns.
Petrol prices rose to more than 170 cents a litre in Melbourne, Sydney and Brisbane late last month, but have since begun to ease slightly as global oil prices retreat from decade highs.
It means Australians are paying more at the bowser than they were last year, but that has nothing to do with Mr Morrison or the Labor Party.
Oil exporters such as the OPEC nations and Russia (a group known as OPEC+) negotiate oil supply levels without any input from Canberra.
These supply levels ultimately influence the cost of oil and the price Australian importers then pay to petrol refineries in Singapore.
Canberra only controls one element of bowser prices: taxation.
The federal fuel excise was about 42 per cent of Australia’s weekly fuel bill in the June quarter, according to data compiled by the ACCC.
It is the biggest single contributor to petrol prices in Australia. But there are no policies from federal Labor or the Coalition to increase this tax.
The remaining 19 per cent of your petrol bill is determined by local retail margins and operating expenses. Governments could move the dial on this part of your bill with regulation, but Labor has no policies to do this.
Finance Minister Simon Birmingham claimed on Tuesday that subsidies for Australia’s two remaining oil refineries were protecting motorists from higher petrol prices.
The government has previously claimed petrol prices would rise by one cent per litre if the refineries closed.
But as The New Daily previously reported, experts have rubbished this claim, saying that because Australia imports almost all of its petrol that saving the refineries is unlikely to have an impact on bowser prices.
The verdict on Morrison’s claim? It’s false. Whether the Morrison government wins or loses the federal election will have no effect on petrol prices.
Shadow treasurer Jim Chalmers said Mr Morrison has resorted to a “pathetic” scare campaign.
“The liar from the Shire is at it again,” Dr Chalmers told reporters.
“Petrol prices have skyrocketed on his watch. Is he now seriously claiming that he has a policy to keep petrol prices down? Well, then let’s hear it.
“He’s so desperate to distract from the economic failures and wasted opportunities that define his time in office that he’s resorted to more and more ridiculous claims.
“Is he seriously now claiming interest rates wouldn’t go up if he’s re-elected, or that he’ll control world oil prices? He’s made middle Australia more vulnerable, not less.”
Joyce’s false claims about Labor
Mr Joyce’s claim on ABC radio on Tuesday morning was more specific than Mr Morrison’s a day earlier. Asked about Mr Morrison’s comments, he proceeded to make several false claims about Labor’s climate policy.
“If you’re relying on green preferences you are going to be having to rely on green policies, it is a very simple equation,” Mr Joyce said.
“If they move away from the export of our fossil fuels, which is a clear policy of the Greens, then with the reduction in what you sell becomes basically a reduction in the value of your currency.
“A reduction in the value of your currency means everything you import obviously goes up.”
The long bow drawn by Mr Joyce here has several problems.
First is the suggestion that Labor will adopt Greens policy to end fossil fuel exports if elected because they rely on Greens preferences.
Although Labor has not yet unveiled its full suite of climate policies, it has guaranteed an ongoing role for fossil fuel exports in the economy.
Labor plans to unveil a policy before the election, without consulting the Greens.
This part of Mr Joyce’s claim is false. Labor has no policy that would end fossil fuel exports as Mr Joyce has suggested.
Joyce’s unsubstantiated claims about the dollar
The second part of Mr Joyce’s claim implies that petrol prices may rise in Australia due to a devaluation in the dollar caused by lower exports.
This claim is more complex and was presented without any evidence.
It’s true that Australia’s trade surplus with other countries influences the value of the Australian dollar versus other countries’ currencies.
A lower-valued Australian dollar is good for exporters like farmers and fossil fuel companies (who, ironically, are Mr Joyce’s core constituents), because they earn more for their products.
But it makes importers worse off because the Australian dollar they use to pay for goods is worth less against every dollar in another currency.
Australia’s trade surplus is just one of several factors that influence the value of the AUD, though, as economist Saul Eslake told The New Daily.
Mr Eslake said Mr Joyce’s claims show he has a poor understanding of the economic principles behind the Australian currency.
He said a major factor in the value of the Australian dollar is the Reserve Bank of Australia’s official cash rate, which is currently at a record low 0.1 per cent.
RBA cash rete more important
The Reserve Bank sets the interest rate independently of the federal government.
“You might say [RBA Governor] Phil Lowe is going to cause petrol prices to rise because he’s going to raise interest rates later than [the US],” Mr Eslake said.
“Should we therefore sack Phil Lowe?”
Mr Eslake said there’s no evidence that the energy transition will devalue the Australian dollar.
It is possible that declining fossil fuel prices (such as coal and gas) may put downward pressure on Australia’s currency, as the world transitions away from fossil fuels to curb carbon emissions.
But the crucial word there is “world”. Although Australia is a net exporter of coal and LNG gas, the price we get for those products is driven by international demand – which is set to fall rapidly through to 2050.
This will happen irrespective of what policies are decided in Canberra.
In fact, under the government’s own net-zero modelling published last week, the value of Australia’s coal exports will fall by 50 per cent by 2050 due to “global demand shifts beyond Australian control”.
And although lower fossil fuel prices may depreciate the Australian dollar, it is also possible that other green industries will grow their share of Australia’s trade with other nations, offsetting the effect of lower fossil fuel prices.
This is because what matters for the Australian dollar is the value of our trade surplus with other nations, not our reliance on a particular export category such as fossil fuels.
Nicki Hutley, economics spokesperson at the Climate Council, said Australia has ample opportunities to export hydrogen and a range of other minerals such as lithium that will be vital to achieving net-zero goals.
“If we diversify into other exports and have a much broader base … we become less reliant on one mineral,” Ms Hutley said.
“You get a less volatile dollar.”
“It’s bad economics”
The government’s net-zero modelling predicts the mining industry will be 5 per cent bigger in 2050 than today due to a sharp rise in new minerals.
A report by advocacy group Beyond Zero Emissions in September found green exports could earn $333 billion a year for Australia’s economy.
Australia’s coal exports were worth just $33 billion over the past year, according to ABS data. Gas was worth just $39 billion.
Even those numbers are dwarfed by Australia’s largest export: iron ore.
Australia’s iron ore trade was worth about $196 billion in the past year.
Australia’s demand for petrol is also set to decline sharply by 2050, with electric vehicles set to become a much bigger part of our lives as the world transitions away from cars with internal combustion engines.
To cite the government’s own net-zero modelling, petroleum will be “displaced” by zero-emissions transport technology through to 2050.
So petrol is also going to become a smaller slice of our annual imports.
“If we’re reducing our import bill then our current account is doing better and we’re likely to have a stronger currency,” Ms Hutley said.
“But you can’t take any one thing in isolation; it’s bad economics.
“You can’t make wild assumptions without laying out all the assumptions and assessing what happens on balance.”
The bottom line on Mr Joyce’s remarks? His claim about Labor’s policies is false and his view on the Australian dollar is unsubstantiated.
Extracted from The New Daily