Motoring groups hit out at fuel excise lift

ScreenHunter_04 Sep. 23 15.14

By Leith van Onselen

Back in 2001, when former Prime Minister John Howard made the politically expedient but short-sighted decision to abolish the twice yearly indexation of fuel excise, I bet he never imagined (or cared) that his protege, Tony Abbott, would be left carrying the bag.

The decision to stop fuel excise indexation now costs the Federal Budget some $5 billion in foregone revenue per year – a figure that would grow over time as inflation takes hold. Along with the proportionate shrinkage of GST revenues, caused by fast growing expenditure on exempt items like health and education, the freezing of fuel excise indexation has also helped foster an unhealthy budgetary reliance on personal income tax just as the large scale retirement of the baby boomer generation is set to shrink the workforce.

Now, facing a long-term deterioration in the Federal Budget, brought about primarily by the secular decline in the terms-of-trade and population ageing, the Abbott Government is scampering for ways to plug revenue holes.

Reinstating fuel excise indexation has gained a tick of approval from economists (including from yours truly), who laud its relative tax efficiency as well as its environmental efficacy. As far as taxes go, it is far better than taxing productive effort.

Unfortunately policy, and ultimately governments, are not formed on the back of rational argument. Rather, it is the court of public opinion that often takes precedence. And it is here that the Coalition’s proposal to reinstate fuel excise indexation could run into trouble.

As reported in The Australian today, the Coalition plans to increase excise by 1 cent per litre in each of the next four years by reinstating indexation, raising around $2.4 billion over the forward estimates.

Already, the motoring lobby has hit back hard, vowing to forcefully campaign against the tax increase, while demanding greater road expenditure:

“Any increase in fuel excise in this budget would be unjustified,” said AAA’s chief executive, Andrew McKellar. “The government must be honest with motorists and confirm that there will be no increase in fuel tax,” he said…

“Motorists already pay around $15bn a year through fuel excise and only $4bn of that is spent on roads, so motorists are already contributing heavily to general revenue,” NRMA spokesman Peter Khoury told Guardian Australia. “If the government wants to spend more money on roads, they should spend some of what they are already raising in excise.”

Sadly, both Labor and the Greens seem intent to oppose fuel excise indexation, instead preferring to gain political capital, whilst also arguing that the Government should abolish fuel excise rebates granted to miners rather than slugging ordinary motorists.

Ultimately, the whole ruckuses over reinstating fuel excise indexation illustrates how difficult it is to make any type of reform, and why governments should think long and hard before taking politically expedient, but ultimately deleterious, policy decisions.

Unfortunately for Tony Abbott, his predecessor John Howard was the master of such decision making, which will leave Abbott (or a successor) in the unenviable position of ultimately having to close his mentor’s tax lurks, as well as cutting back on the myriad of unsustainable spending programs implemented by both the Howard Government and Labor.

Governing was never going to be easy once the rivers of gold from the mining boom receded and demographic headwinds stiffened. And nearly every major Budget decision from now on are likely to be treated with similar disdain.

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Leith van Onselen


    • Across federal, state, territory and local, so it’s being funded from a variety of sources. The net result might be similar, but it’s not linked funding, which is where the AAA beef lies.

      • “The net result might be similar, but it’s not linked funding, which is where the AAA beef lies.”

        But is the fuel excise meant to be linked directly to road spending? (I didn’t think it was but I am happy to stand corrected – Wikipedia tells me that the excise is passed to the states anyway)

        If it’s not, then I don’t think he has a relevant point.

        The states used to levy fuel franchise fees, but after Ha v New South Wales these were seen as unconstitutional, so the federal government introduced an excise and gave the revenue to the states.

      • As far as I understand it, Excise goes into general revenue, and GST is the primary source of state grants. The question of excise being directly paid to the states as a result of that ruling would’ve been pre-GST when the states primarily raised revenues through their own direct taxes.

        From a user-pays mindset, a direct tax on an input that is primarily used for a single purpose should be linked to paying for maintenance and improvements around that purpose, so a fuel excise on the primary input for transportation should pay for improvements to and around transportation. My driving shouldn’t subsidise your child’s childcare, to put it bluntly, but I’m happy for it to fund road improvements, or say rail improvements that means less cars on the road.

        However I don’t think it was ever quite so strongly linked, either legislated or through policy, especially as responsibilities for roads is split across the three levels of government.

        (This is not to say I agree with the user-pays mindset in its entirety, but that’s the underlying driver for the AAA expressed through the spokesman.)

  1. First 4WD vendor grant now!

    God the media is loathsome. House price rise by tens or hundreds of thousands good, a few cents a litre on petrol very bad.

  2. I won’t attempt to speak for all motorists, but a good number of “motorists” find themselves driving 1 hour each way to and from work. Are these people really “motorists” or would they prefer to live closer to work?

    Is the problem that high petrol tax is damaging motorists? Or are these people actually “priced-out walkers” who are being damaged by some other problem in our society?

    • C.M.BurnsMEMBER

      You’re on to something there Claw. The problem for the media/news is that explanation cannot be condensed into a 5 second / 3 word slogan, which the general public have been trained to digest.

    • + 1,000,000

      I drive part of the way to work extremely reluctantly,
      Given marginally improved PT and/or improved housing choice I would reduce my time behind the wheel, even at the cost of a longer commute.

  3. Raising the fuel excise could be made a lot more politically palatable if they slashed the rebate to mining companies. You can’t be seen to be hitting battlers in the mortgage belt, but giving Gina, Clive and Twiggy a free ride.

    I don’t think most voters realise that mining companies get their fuel 32c/L cheaper than the rest of us. If this knowledge was more widespread, there would be a lot more voter anger out there.

    If I was the Greens I would be milking that for every vote I can get.

    • Having said that, I agree that reintroducing fuel excise indexation is good policy, and reverses a horrendous Howard-era mistake.

    • It would be even more palatable if they removed GST from the excise. A tax on a tax is ridiculous.

    • The miner and agricultural fuel excise rebates are to avoid a tax on our two major, trade exposed, high fuel input sectors.

      Whether this is a mere cover or ought be extended to all other trade exposed sectors based on a benchmark of fuel as a proportion of total input costs is another issue.

      • Try this line on the average voter:

        You pay 38c/L tax on your fuel (and going higher)
        Gina Rinehart and Clive Palmer pay just 6c/L.

        Tell me how you go explaining that business inputs shouldn’t be taxed for “our two major, trade exposed, high fuel input sectors”.

  4. C.M.BurnsMEMBER

    For once I’ll give Abbott & co some credit. Howard should never have halted the fuel excise indexation to begin with. It delivered short term political gain for long term financial pain.

    This is reversing a bad policy decision, so kudos.

  5. “…Unfortunately for Tony Abbott, his predecessor John Howard was the master of such decision making, which will leave Abbott (or a successor) in the unenviable position of ultimately having to close his mentor’s tax lurks….”

    Or a successor….

    That is the bit that is really interesting.

    All the huff and puff over the last few weeks confirms that the government has been told that the days of can kicking and cheap and nasty expediency are coming to a close.

    They are freaking out at thought of handing out nasties instead of sweeties and that is why they are floating more kites than during the festival of the wind at Bondi.

    Rudd/Gillard probably got the same message and then went to water when it became clear there was a few more years of can kicking / problem dodging available.

    Abbott/Hockey must be deeply aware that unless they plan on a single term in government they are the ones who will be holding the parcel when the final wrapper is removed and the ‘surprise’ has a distinctly unpleasant odour.

    Big blokey men under pressure !

    Better than the footy.

    • The LNP are using a fabricated budgetary “emergency” to dismantle Medicare, walk away from commitments on education spending and NDIS, among many other things. The tax initiatives are really incredibly minor, representing a tiny share of GDP.

      The LNP are doing what they ALWAYS do after an election win: chop social spending, increase taxes, increase spending overall and blame their opponents.

      • I would put it slightly differently.

        There is an economic ’emergency’ which the LNP must respond to.

        But that is different to a budgetary emergency which is always an exercise in smoke and mirrors regardless of who is in government.

        That they are not doing that and are simply pursuing their traditional axes they like grinding after elections is another thing.

        That the budget measures they are proposing are not warranted, justified or address the economic problems does not mean there is not an economic emergency that needs to be addressed urgently.

        I think the mistake that some are making is concluding that because the LNP response to the emergency is not appropriate that means there is no economic emergency.

  6. Higher fuel prices are regressive in that they are a much higher proportion of lower percentile income groups (but not directly the lowest percentiles as they either can’t afford to run a car or don’t drive big distances).

    They are also indirectly regressive as they filter into the cost of most other goods through transport/delivery expenses including for food, including food not covered by the GST.

    This is another Abbott regressive additional tax to “solve” a confected budget emergency.

    Based on the budget leaks so far, Abbott will be liar, liar, liar, liar, liar,liar after the budget comes down.

    Mr Abbott said on the night before the 2013 election: “No cuts to education, no cuts to health, no change to pensions, no change to the GST and no cuts to the ABC or SBS.”

    • 1c/L over 4 years is the same as a Coles discount docket. No-one’s going to even blink at the difference if that’s all they’re going to limit it to. It’ll be a rise of 0.7% in the fuel component at the average price of 140c/L or so.

  7. Diogenes the CynicMEMBER

    Just made my next car purchase decision a whole lot easier. Electric here we come!

  8. I would like to see the Greens or Labour use a bit of forward thinking and support this because they should know if they get into power they are going to have to be the bad guys and bring it back in…