Indonesian petrol riots and the global debate on gas taxes

How governments control the price of gas

Jack Rodolico By Jack Rodolico

Between the reality at the pump and the constant stream of news, it’s hard to ignore the rising price of gas in the U.S.

The average cost of a gallon of unleaded has risen for the past 19 consecutive days, inching closer to the dreaded $4 per gallon mark. In response, the U.S., U.K. and France are considering opening up their strategic oil supplies in an attempt to lower prices at the pump. And last week, President Barack Obama and the GOP presidential candidates exchanged jabs on energy policy, each seeking to explain why gas prices are so high.

Latitude News hit the streets of Austin to see what Texans thought about rising gas prices.

 

Gas prices vary considerably around the world, but that’s largely based on one factor: how a nation taxes or subsidizes fuel.

Indonesia on the brink

We start in Indonesia, where gas prices have been very much on people’s minds this week. There were demonstrations across the country – some of which turned violent – to protest against a a proposal to lift fuel subsidies. If the Indonesian Parliament votes to kill the subsidy this week, the average price of fuel will rise 33%, from about $1.90 per gallon to $2.50 per gallon.

Student protesters burn tires during a protest against the government's plans to raise fuel prices. The protest took place in Medan in Indonesia's North Sumatra province, March 28, 2012. (Reuters/Tarmizy Harva)

This price hike would keep the cost at Indonesian pumps $1.40 below the current US average, but 100 million Indonesians earn only two dollars a day. If you don’t own a car in Indonesia, you can still expect to see food and transportation costs rise sharply.

Indonesia is a net importer of oil, and the government says it can no longer afford to spend $18 billion per year on the fuel subsidy. And according to the Jakarta Globe, some of Indonesia’s leading economists say average citizens can afford the price hike, pointing to the rise in per capita income since 2010 from $3,000 per year to $3,500.

Protesters disagree, taking to the streets by the thousands in Jakarta, Medan in North Sumatra, and Surabaya in eastern Java. They claim Indonesia does not have the public transit infrastructure needed to usher commuters onto buses and trains. And many scoff at the government’s promise to provide 18 million poor people with $16 per month, saying most people aren’t poor enough to benefit from the cash.

Meanwhile, international investors are dumping Indonesian bonds after news that the national currency, the rupiah, performed worst this quarter among Asia’s 10 most-traded currencies.

In Europe, it’s all relative

With an average gas price around $3.90, about 12.5% of what your paying at the pump currently is gas tax. If you think that’s steep, you may want to avoid a vacation in Great Britain this summer. Taxes and duties account around 60% of the price Brits pay for unleaded gas when filling up at the pump.

How do UK petrol prices compare with other countries?

Infographic by Staveley Head

The graphic above comes from Staveley Head, a U.K. insurance company. Click on a country to compare its gas prices with those in the U.K a.nd you’ll find that tax rates across Europe keep gas prices high — particularly relative to the US, where we pay way less for a gallon than Slovakians, Norwegians, and Italians.

Broadly, Europe implements high gas taxes to discourage driving. According to the Canadian Victoria Transport Policy Institute, high gas taxes can reduce traffic accidents and deaths, lower greenhouse gas emissions, raise fuel efficiency standards for new cars, and increase the use of public transportation.

Drivers in the U.K. actually pay two taxes at the pump — a “fuel duty” and a value-added tax, or VAT — hence the nation’s higher than average fuel costs. Together these taxes pull in about $43 billion each year for the British government.

But don’t think Brits are content with the price of gas. FairFuelUK campaigns to lower the fuel tax, citing a study that claims lowering the fuel tax by $0.04 U.S. would create 175,000 jobs within a year.

Staveley Head also keeps track of cheap gas around the globe with a list of the world’s 10 cheapest cities to buy gas. Not surprisingly, the cheapest locales — like Caracas, Venezuela and Riyadh, Saudi Arabia — are in the world’s leading oil exporters, where supply is cheap and subsidies are high.

International perspective doesn’t help U.S. wallets

In the U.S., the federal tax on a gallon of gas is 18.4 cents; but after state taxes, the national average tax on gasoline was 48.8 cents as of January 2012. By contrast, gas taxes in Europe range from about $5 per gallon in Turkey to a little over $2 in Slovenia.

Of course, pointing out that Americans pays less for gas than Europeans isn’t helpful for the average mother or father balancing the family budget. But it is intriguing to know why the tax was implemented in this country to begin with: to balance the budget. Championed by President Herbert Hoover during the Great Depression, the Revenue Act of 1932 placed a one-cent excise tax on gasoline.

After signing the Revenue Act, Hoover said, “The willingness of our people to accept this added burden in these times . . . is a great tribute to their wisdom and courage.” The Revenue Act placed taxes on all sorts of consumer goods: chewing gum, inner tubes, soda, cameras, jewelry, coal and firearms, to name a few.

The gas tax has increased slowly over the years, at times being diverted toward paying for defense costs and balancing the budget. Today, the tax mostly pays for roadwork. But because the tax has not increased with inflation, it would need to double to truly cover all roadway costs.

It seems ironic to point out that Hoover was a Republican president who raised taxes during the Great Depression. How things have changed.