Most people who drive will likely have noticed that the price of petrol in recent years has not exactly been as friendly on the wallet as it was a decade or so ago. In fact other than a three week stint in July last year where it only just dipped under, the average weekly price of regular 91 hasn’t been below $2 per litre since February 2011. The price per litre is shown in the graph below.
What’s interesting is to see the impacts that this is having on peoples spending.
Stats NZ release monthly figures on the amount of money spent on electronic cards across the country. This doesn’t include purchases using cash, vouchers etc. but does give a break down by various industries and so provides a good indication as to where people’s money is being spent. The data is broken down by
- Retail
- Core Retail
- Consumables
- Durables
- Hospitality
- Apparel
- Fuel
- Vehicles
- Core Retail
- Services
- Non-retail industries (excl services)
The fuel industry sits under retail and as it’s broken out it means we can get an idea of just what impact the cost of increasing fuel prices are having on peoples spending – and the result isn’t good.
First of all here is the percentage of retail spending that went on the fuel industry based on the 12 month rolling totals and it’s gone from 10.5% a decade ago to just over 16% now. In other words we are now spending a much greater proportion of our money on fuel than we have in the past.
The next graph shows the change in the fuel industry spending compared to the rest of the retail category indexed back to September 2003. Again it shows that spending on the fuel industry is rising faster than our spending elsewhere.
However I understand the fuel industry figures are likely to included spending in stores associated with petrol stations i.e. people buying inconvenience items. The graph below how the percentage on the fuel industry compared to the average price of petrol and as you can see the two generally tend to follow each other. This graph is based off the monthly results so the big downward spikes will be the impact of Christmas increasing retail spending in other areas.
So why is this important? Well the money that is spent on transport – which is probably mainly used for commuting – is money that can’t be spent elsewhere in the economy. All up New Zealanders spend about $52.5 billion on cards in the 12 months to the end of October (which is double what we spent a decade ago). Imagine if over the last decade we had better developed options to allow people to get around without needing to always drive that had allowed our spending on fuel to stay at 10.5%. The difference between that and the percentage we spend now would be about $3 billion a year (on cards alone) which is almost 40% of what we spent on hospitality over the same time period. Imagine what that would do to our liveability and happiness if people could afford to spend more on activities or what would it do to lower income families who are struggling.
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Another good quote via Jeff Speck is that 85% of the money spent on driving leaves the economy.
Wouldn’t that figure be even higher here with no vehicle manufacturing industry and a much smaller proportion of local oil supply?
Yes it would. I think the only tangible local economic benefit of driving would go to auto sales, repair shops and the old school media.
Plus increased margins in the trucking industry thanks to tax payer subsidies on their use of the roads.
Employment at petrol stations, too, and all the tax take from petrol sales (both excise and GST) as well as GST on in-store sales.
“The difference between that and the percentage we spend now would be about $3 billion a year (on cards alone) which is almost 40% of what we spent on hospitality over the same time period”
To put that into perspective thats the same $$$ impact on the economy as the Government selling 49% of Meridian shares every year..
or KR buying a new fleet of 160+ EMUs each and every year, or replacing every bus in Aucklands bus fleet with brand new hybrid equivalents every 3 years.
In France, petrol costs about the same as here (1.4euro/l) but it’s 66% tax, vs. 30% at the moment in NZ (taken from http://www.aa.co.nz/cars/maintenance/fuel-prices-and-types/petrol/ and assuming ~2.1$/L). So why is NZ allowing fuel traders/importers/refiners/retailers such big margins? If this money was going into public hands, it could help bring transport alternatives about.
Taxes currently account for 92 cents of the purchase price in NZ, or around 43% of the pump price (this includes GST). The underlying price before tax is pretty similar to what it is in most countries… the margins don’t differ that much.
We are awash with renewable electricity in NZ yet each year we send NZD 8 bn and growing to a bunch of dodgy regimes for their oil. Just nuts!!
Any have an idea how much this increase in the cost of fuel explains the decline in driving that has been noted in this blog many times?
Personally, I think the decline in driving in the last decade is mainly due to the massive increase in fuel prices, and to some extent the recession, although I haven’t quite gotten around to writing about it yet…
Now now JP, don’t come all over exclusively economist on us. Those factors are almost certainly really significant but remember a whole lot of people also say that they just don’t want to drive. It’s frankly out of fashion with whole generations of folk, as well as them performing, as Econ 101, rational actors…..
Fuel prices have no effect on my driving, it certainly isn’t any trouble for me to pay for all the prices. Rather I have no interest in driving or wasting my money on it, so yes there’s more to it than simply pricing people out of driving.
NZs brilliant scientists Professors John Boys and Grant Covic have already invented the wireless inductive power transfer (IPT) system necessary to make NZs renewable electricity generation available to our nations vehicles. John Key gave them a prize but what we need is the vision for a national roll out of this technology. We truly would be world leaders. Now that’s gotta help our clean, green NZ brand, our overseas deficit and reduce one of the main stumbling blocks to lowering the over inflated NZ$ so our exporters can get on the front foot. It could be done by harnessing the $3 billion annually.
We will be talking more about electric vehicles in the future – watch this space. While they could bring a lot of benefits to many parts of NZ, they won’t be quite as much help in Auckland, as they won’t help to solve congestion issues.
Electric vehicles, in combination with greater use of public transport, could help with many of the things you suggest.
Remember that bicycles can also be “electric vehicles” these days! I live 7km from work, so 70km per week commuting plus a bit of faffing around. Petrol used to cost me $25 a fortnight, then it crept to $30 and then to $35-40. So I did the numbers, and got an electric bike, which cost me $1200 and I charge in the office. My petrol bill is now less than half what it was. Working on saving around $50 a month in gas, my ROI on the electric bike is about two years. The battery will need replacing every three years, so over a six year life of the bike I calculate that in constant dollars I will save around $2000 dollars. The numbers already add up, and with the cost of fuel only going one way, I expect they will only get better.
Interestingly, I have a colleague who spends something like 10% of his after tax income on petrol to commute from the farthest reaches of Pakuranga to work downtown everyday.
Yes electric bikes are great. I cycle far more now that I have one as it is so much easier and relaxing.
I think you are being pessimistic about the battery. I know a guy who has had an e-bike for about 6 years and has only just chnaged the battery – and the technology has improved in that time. The battery he had was still going but lacked a bit of oomph.
I am getting a Christiania cargo bike (http://www.christianiabikes.com/en/product/26/) this week with an electric motor . That will serve as our second car – cant wait!
Also because it is a trike, under NZ law no cycle helmet has to be worn.
Nice!
Remember that electricity in NZ still comes at a large cost to the environment — dams have huge environmental costs. And the big, easy ones have been built some time ago.
No one here is proposing building more dams for electricity generation. Irrigation for and pollution from dairy farming is the current river threat.
Most progressive governments would be looking to reduce oil imports for all the glaringly obvious reasons but not this myopic lot, they reap so much tax from it and maintaining the status quo helps their millionaires stay that way. Another nail in the coffin of their ability to manage NZ’s economy.
It’s more like they have an out of date model of the only way our economy can grow. They can only conceive of growth through more driving and more resource consumption at a very basic and unsophisticated level; heavy lifting is all these goons understand.
How many trucks are required to deliver Xero’s product?
This century’s real successful places will be more dependent on the electron and not the hydrocarbon. Both the grid and micro generation and local networks.
A NZ government with any idea would be getting us off that last 20% of FF electricity generation and minimising our dependence on imported oil.
“How many trucks are required to deliver Xero’s product?”
this