Cutting fuel excise is like cutting carbon taxes

Alan Kohler has rubbished calls to reduce the fuel excise in response to rising petrol prices, claiming it would be equivalent to cutting carbon taxes:

Petrol excise is Australia’s de facto carbon tax… It’s already one of the lowest gasoline taxes in the world…

Australians still enjoy fairly low petrol prices – in most European countries they are 30 per cent higher than here, although in the US they are 30 per cent lower.

In any case, a temporary reduction of petrol excise would be pointless because the revenue would have to be made up somewhere else and the rise in the oil price is neither temporary, nor finished.

The oil market is in structurally short supply and the price is likely to stay where it is, if not move higher, for years to come – until it collapses entirely because no one is buying it any more…

The best thing the government could do now would be to introduce a proper resource super profits tax on fossil fuels now that the producers are making super profits again and use the money to subsidise renewable energy and electric vehicles to speed up net zero.

That’s not going to happen, of course, but at least we have a de facto carbon tax on petrol.

Too right. The Henry Tax review explicitly stated that fuel excise offers environmental benefits by acting as a pollution tax:

…the excess burden of fuel excise may be overstated to the extent that there are social and environmental costs of fuel consumption. These externalities may be reduced as excise curbs fuel consumption, which would improve welfare.

The Henry Review also noted the efficiency benefits of fuel excise, which carries a “marginal excess burden” (i.e. the loss in consumer welfare relative to the net gain in government revenue) well below personal or company taxes.

Cutting fuel excise would be a stupid, short-sighted move that would wreck the sustainability of the Budget and tax efficiency, as well as hamper Australia’s climate efforts. Don’t go down this road.

Unconventional Economist

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