Fed: Oil prices should be allowed to rise

AAP General News (Australia)
02-16-2006
Fed: Oil prices should be allowed to rise

Eds: Embargoed until 0001 AEDT Thursday, Feb 16



By Shane Wright, Economics Correspondent

CANBERRA, Feb 16 AAP - The nation's top economic body is calling on state governments
to impose congestion taxes on motorists to alleviate city gridlock and encourage public
transport use.

In a paper for the Committee for Economic Development of Australia (CEDA), consultants
Nicholas Gruen and Kenny Lin say the changes are part a package of reforms required to
adopt the economy to a future dominated by high oil prices.

Apart from boosting business research and development tax concessions to encourage
new energy sources, Dr Gruen and Mr Lin said state government's needed to adopt congestion
taxes.

These are taxes slapped on vehicles in inner city areas, aimed at encouraging greater
use of public transport.

The pair warn that the nation's motor vehicle manufacturers could go out of business
unless they switched production away from large, family vehicles.

"Demand for such large vehicles has fallen around the world in response to the new
oil shock, and this will make life difficult - perhaps very difficult - for our large
vehicle manufacturers as overcapacity develops in this sector," they said.

Dr Gruen, who previously worked with the Productivity Commission, and Mr Lin, a consultant
in energy economics, said there had to be major policy changes now so that Australia could
adapt to a future of high oil prices.

They say the federal government has to consider better incentives for companies to
find and develop new sources of energy, but the government should resist political pressure
to cut fuel excises.

"Allowing oil prices to rise, and better pricing of other resources that are not well-priced
at present (like road use and congestion) will economise on our use of oil, facilitate
greater investment in oil exploration and production, and the development of alternative
sources of energy," the two say in the paper.

"All these things will allow Australia to take advantage of the undoubted opportunities
that high oil prices have for our economy."

In their paper, the two say previous forecasts on oil production and prices have proven
to be wildly inaccurate buy they believe high oil prices are here to stay.

Oil prices have hovered around $US60 a barrel for almost six months, pushing prices
at the bowser to about $1.20 a litre.

However, high petrol prices has so far failed to dampen the economy or accelerate inflation,
suggesting that petrol prices could continue to grow without substantially hurting the
economy.

AAP sw/jm/bwl

KEYWORD: OIL (EMBARGOED)

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