There is news today that BHP CEO Andrew Mackenzie lobbied Joe Hockey personally to prevent a Budget cut in the diesel fuel rebate. From the AFR:
Sources said Mr Mackenzie wrote to Treasurer Joe Hockey before the May 13 budget outlining concerns at any cut to the rebate. He met separately with Mr Hockey and other senior ministers, including deputy Liberal leader and senior Western Australian minister Julie Bishop.
…The mining campaign rivalled that run in parallel by the Nationals and the National Farmers Federation. One source said some Nationals were so concerned that the rebate would be touched they were making veiled threats to Liberal backbenchers about destabilising Tony Abbott’s leadership.
…A spokeswoman for Mr Hockey said lobbying on the rebate was equally furious before every budget and “it would be wrong to say that the miners changed the decision of the government’’.
But the AFR’s government source said that a rebate “haircut” was under consideration until it was decided against because it would be like “opening the Russian front” with miners.
Leith has previously rationalised the rebate in the following terms:
Indeed, the Henry Tax Review argued that the diesel rebate is not a subsidy for the use of fuel:
The system is intended to remove or reduce the incidence of fuel tax from business in puts, so that its incidence falls primarily on certain private consumption of fuel. This limits the impact on production decisions. For example, fuel tax credits mean that all electricity generation using liquid fuels is effectively free of fuel tax, in the same way that coal or natural gas inputs to electricity generation are untaxed. [pg 288]
Similar arguments have been made by the Australian Treasury (see here and here):
Fuel tax credits are not a subsidy for fuel use, but a mechanism to reduce or remove the incidence of excise or duty levied on the fuel used by business off road or in heavy on-road vehicles. The incidence of fuel tax is intended to fall on fuel use in private vehicles or for other private purposes and in light on-road vehicles used by business.
Similar to goods and services tax input tax credits, fuel tax credits remove taxation from business inputs. Their purpose is to avoid distorting business investment decisions and behaviour that would occur through taxing business inputs
Given the above, I was wrong to suggest that the diesel rebate is a “subsidy”. Taxing a business input (fuel) other than as a road user charge (or to address an explicit externality) goes against the principles of good tax policy.
A better (less distortionary) option for raising additional tax revenue would to be to implement some kind of resources rents tax. Unfortunately, we stuffed that up.
Although it is monstrous that the big miners can now bowl up to Canberra any time they like and bully outcomes, is it right to correct one tax mistake by committing another?
