Oil slump worries Aust. Government

Press, 27 January 1986, Page 14

Oil slump worries Aust. Government

The Australian Prime Minister, Mr Hawke, has acknowledged that the oil price slump was a hugh budetary headache and could cost the Government up to sAustl.6 billion (SNZ2.2 billion) in lost revenue.

However, Mr Hawke also indicated that the Government could prevent such a dramatic fall in 1986/87 receipts by juggling with the oil import parity pricing system (IPP) — a move which would prevent motorists receiving petrol price cuts of six cents a litre from March 1.

He said the drop in crude oil prices, if maintained, would result in a “tight Budget,” but the Government was already facing such a prospect because of its deficit and spending promises under the economic trilogy.

The combination of the oil slump and tax cuts of $1.2 billion (SNZI.6 billion) from September will force the Government to tighten its Budget belt next financial year, and has resulted in the Finance Minister, Senator

Walsh, seeking 1986/87 spending cuts of up to six per cent from all departments.

The 30 per cent, or SUSB per barrel, fall in crude oil prices since early December in a heavily oversupplied world market will have little effect on the 1985/86 Budget outcome, but the slump could have an impact from March 1 when IPP is again reviewed.

With the crude oil spot price falling to below SUS2O a barrel, the lowest price for seven years, industry analysts have predicted that petrol prices could be slashed by up to six cents a litre from March 1.

This cut would depend on the IPP benchmark of 80 per cent spot price and 20 per cent official prices remaining unchanged, but Mr Hawke, speaking in Hobart, would not rule out formula changes. “I think it’s quite obvious there'll be some relief (from current petrol prices), but what’s got to be understood is that with the fall in price, if we simply applied the IPP then that could mean a very, very significant fall in revenue to Government,” he said.

Mr Hawke added that the promised tax cuts would not be affected by the possible

revenue shortfall. In’ an earlier interview on Sydney radio station 2GB, Mr Hawke said the $1.6 billion (SNZ2.2 billion) revenue cut would . only emerge if oil prices fell to between $8 and $lO and stayed at this level for a considerable period. “It means a tight Budget and we’re approaching a tight budgetary situation anyway, because we’ve got the commitments that you know of in regard to the deficit and the levels of Government expenditures," he said.

“So yes, it means a tough Budget and we’re going to have to make, as we have in the previous three years, the right mix of decisions which is going to maximise growth at sustainable levels of inflation.”