We need higher fuel prices

The Automobile Associate seems to think someone should care what their view on petrol prices is.

Familia Stefanelli
Creative Commons License photo credit: Daquella manera

Taxes on fuel are like other taxes – a way of financing government expenditure and a distortion of an otherwise free market. The difference is that the free market does not price in externalities such as pollution. Most of our roads are “public goods” that we don’t pay to use. Annual vehicle licence fees are not enought to allocate the cost of building and maintaing roads to those who use them.

The time wasted by millions of citizens each day as they are stuck in congestion is a real economic cost.

The good news is that an increase in fuel prices is a reasonably efficient tax (difficult to be avoided), promotes the use of fuel efficient vehicles (in the long run) and car-pooling, allocates the costs of road construction to those who use them most (fuel consumption is directly related to vehicle weight and thus impact on roads), helps us to reduce emissions and reduces our import of foreign oil which affects our current account.

Higher fuel taxes increase the price of goods. This is true. But so does an increase in VAT. An increase in income tax increases the cost of all goods relative to after tax income. However, fuel taxes have many desirable side effects. We don’t need lower fuel prices and we don’t need to argue against increases in tariffs and fuel taxes. We need higher fuel prices.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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1 Comment

  1. I dont like the sound of that fuel prices worldwide are already through the roof add that to other bills and it is way to much, perhaps it might make less people consider driving everywhere therefore polluting the oceans less you never know, anyhow thanks for the news its been passed to my crew at Travel HQR.

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