Petrol tax
Clearly given the impact it will have on the population of this country one cannot look forward to a petrol station blockade, but at least it will see whether the current Tory party believes in law and order.In the meantime the question of petrol tax has cropped up. Michael Howard has said that the government should defer tax increases, or even lower taxes, if the world market price is rising. The government made a similar argument last year.
In practical terms this has some merit. A high petrol tax cushions us against swings in the oil price, and changing it does so more. However one must be careful. If we were to lower the petrol tax when the oil price rose, and raise it (as practically one would have to in order to protect revenue) when the oil price fell, we are essentially (currency changes aside) giving OPEC a free ride. They can increase the price of oil without concern about demand falling. Oil would have no price elasticity. Thus prices would rise.
posted by Matthew @ 5/20/2004 07:46:00 PM
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