Newton’s Law of Bureaucracy states, “Whenever government interferes in a market, the results achieved will be equal and opposite to those intended”.
Take the latest petrol price freeze as an example.
Mr Keating and his price commissars were presumably trying to protect Australians from higher petrol prices caused by Iraqi disruptions.
What the price freeze will achieve (if anything) is a greater shortage and higher prices for petrol in Australia.
In an open economy, price is the traffic cop of the market. He stands at the intersection of the supply road and the demand road signalling to both producers and consumers so that supply equals demand. If he puts his price up, every consumer is told that supply is likely to be short and he should start rationing.
So the first thing achieved by Keating’s price freeze was that Australia consumers were not told of the disruption to oil supplies which would reduce the supply of petrol in Australia. Our motorists went on as before, using petrol as if it were cheap and plentiful, because Keating had mugged the price signaller.
At the same time, the price freeze made it unprofitable for producers and refiners to buy overseas crude oil and bring it to Australia.
Any oil company with access to expensive foreign crude would not bring it to price-frozen Australia — it would go where petrol prices were high — to enlightened places like Hong Kong who have no domestic oil and can’t afford to have politicians interrupting their petrol supplies.
So, the price freeze has ensured that demand for petrol in Australia will be higher than it should be and supply of crude oil to Australia will be lower than a free market would allocate.
These fuelish policies can only have two possible outcomes — a shortage of petrol, or higher petrol prices — equal and opposite to the result the Treasurer intended. When this occurs he will of course blame wasteful consumers, greedy oil companies or the Middle East War.
If he has any sense, he will immediately abolish all price control on all crude and refined petroleum products. If not, he should start printing petrol ration coupons.
This stupidity is but the latest in a long line of useless or pernicious interference in the oil industry which has suffered more enquiries, regulations, threats and red tape that even the marketing of bread in Queensland.
My files on bureaucracy only go back fifteen years, but there has been a Prices Regulation Authority under various names for the whole of that time.
The 1975 Royal Commission into Petroleum spent forests of paper and fortunes of legal fees to recommend rationalisation of retail petrol outlets. (Which was occurring, and would continue, irrespective of what the royal pontiffs decreed.)
Then the government recognised that their oil price regulations were sending oil explorers overseas. So they came up with a brilliant new scheme of “old oil” (which they would continue to tax and control) and “new oil” (which got more favoured treatment). The Department of Natural Resources recommended “multi-tiered pricing” for crude oil.
Of course this didn’t work either, so in 1976 there was an IAC enquiry into the pricing of Australian crude oil. This tried to discriminate further between “old” and “new”, “shallower” and “deeper”, “pools” and “fields”, (which gave them 16 categories of red tape and many more public servants to boost job creation).
Gough and his mates then decided on “import parity pricing”, which was a sort of pretend free market administered by an army of bureaucrats. This certainly sent the high price signal to consumers, but it never got to producers because Gough decided on a bit of shameless profiteering by introducing the crude oil levy.
Every new regulation caused further disruptions and more calls for enquiries. So in 1979 the PJT had an enquiry into petroleum product prices and the Trade Practices Commission inquired into price discrimination. They then made price discrimination compulsory and over the two years 1980-82 Total Oil reported losses of $30 million from petrol marketing in Australia and decided to quit the business. In 1983 the major oil companies reported losses of over $200 million.
The states, of course, did not miss the boom in production of red tape for the oil industry. State price controllers in NSW, Victoria, SA and WA regularly reviewed and revised the prices set by federal authorities. And the Victorian government commissioned yet another enquiry into oil company pricing and practices. We got state petrol taxes and wholesale and retail petrol price control.
The regulatory fever reached a crisis point in 1980 with the passage of the Petroleum Retail Marketing Franchise Bill and the Petrol Retail Marketing Sites Bill. The shameless “Liberal” Minister who introduced them (Mr Garland) said, in the understatement of the decade, “this government is not a laissez-faire government”.
As Newton’s Law predicts, these bills had perverse results, but there was no shortage of brave bureaucrats ready to leap in again.
Thick and fast they came. We got fuel freight subsidies, diesel excise taxes, bi-centennial fuel taxes, (no doubt intended to remain for 200 years), crude oil import controls, domestic oil allocation quotas, gas subsidies, rack pricing, more enquiries by the Federal Department of Industry and Commerce (1983), the WA Government (1983), the Queensland Government (1984), NSW Government (1984), the Price Surveillance Authority (1985, and 1989). The Victorian government not only ran their own enquiry in 1983 — they also set up a group of bureaucrats within the Department of Mines and Energy to monitor the oil industry and deal with fuel emergencies. (Presumably they are now on our frigates in the Persian Gulf.)
As could be expected, all this harassment, intervention and control has convinced many explorers, refiners and retailers to leave the oil industry in Australia. With the recent sell-out by Esso, the number of significant companies marketing petrol in Australia has dropped from nine to five in a decade and many other producers and refiners have reduced their investment in this over-regulated and often unprofitable industry. This has greatly harmed our ability to withstand another oil crisis.
Through all of this, consumers get the rough end of the dip-stick, and the worst is yet to come. If we do not have fuel rationing or skyrocketing petrol prices it will not be for want of effort by our bureaucrats and commissioners. If all the hot air they have generated in the last decade has been harnessed, it would be a significant new energy source.
People say what would happen under “laissez fair”? It could scarcely have been worse. Looking to government to solve our energy problems is like calling an arsonist to a refinery fire — they could not solve the problem — their influence is the biggest problem.
(PS. The Queensland Government has just announced an enquiry into energy policies. This is my submission.)
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