State Liberal premiers demand fuel excise cut

The federal government is under growing pressure from state Liberal premiers to temporarily reduce the fuel excise in response to rising petrol prices. South Australian Premier Steven Marshall is amongst the leaders who have urged the federal government to reduce the $0.442 per litre excise tax, amid concern that cost-of-living issues could affect the outcome of the state election on 19 March.

Prime Minister Scott Morrison has left open the possibility of a fuel excise cut in the upcoming Budget. But he stresses that this would have little impact on price fluctuations, given that the rising cost of petrol is due primarily to the war in Ukraine.

From The Australian:

South Australian Premier Steven Marshall made an election-eve appeal to Canberra to act on excise as he fights to stave off defeat in Saturday’s poll.

NSW Premier Dominic Perrottet on Sunday strongly supported cuts to the $50bn fuel tax, as did Tasmanian Premier Peter Gutwein, who has written to the Prime Minister demanding ­action…

Mr Perrottet said people were being penalised across NSW because of the rising bowser ­prices…

“I would welcome any move by the commonwealth government to reduce excise which reduces the costs to families at this difficult time,” Mr Perrottet said. “States and the commonwealth have an important role in putting downward pressure on family budgets across the country.”

I hate to sound like a broken record here, but cutting fuel excise to counter the Russian-Ukraine war would be a stupid short-sighted move that would wreck the sustainability of the Budget and tax efficiency.

Fuel excise indexation helps to broaden the tax base. It is also an efficient tax, creating a “marginal excess burden” (i.e. the loss in consumer welfare relative to the net gain in government revenue) of only 15%, according to the Henry Tax Review. This efficiency loss compares well against personal income tax (24% marginal excess burden) and corporate tax (40% marginal excess burden).

Moreover, a rise in the fuel excise offers environmental benefits by effectively acting as a pollution tax. As noted by the Henry Tax Review:

…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 Howard Government’s decision to freeze the twice yearly fuel excise indexation in 2001 (reinstated by the Coalition in 2015) costs the federal budget around $5 billion a year. Freezing excise once again would only increase this revenue loss.

Doing so would be a grave mistake from a Budget and environmental sustainability perspective.

Unconventional Economist

Comments

  1. Strange EconomicsMEMBER

    Reduce a climate change related tax. Sounds like something for the playbook.
    Of course they could add fuel excise to mining companies – that would balance it up…

    The other winner is a plan to reduce beer tax.
    Free beer is a good election winner at Student elections…

  2. Are these the same Premiers who want to tax EVs on a distance basis because they don’t pay excise?

  3. Jonathan Rubenstein

    Sydney now has the most toll roads and the most expensive toll roads of any city in the world.

    Since the excise is no longer used to pay for roads, fuel exise should be axed.

    It is no longer an efficient tax. Cities should be “free trade areas” without inefficient taxes limiting mobility. Tolls fall unfairly on those poorer folk who have to drive from cheaper outlying areas to work.

  4. turvilleMEMBER

    More importantly we need to take a good look at the longer term issue of fuel security – that assumes that every mode of transport isn’t replaced by electric transmission and oil and its refined fuel derivatives are at the mercy of regional supply and stability. Ludicrous idea to have eliminated the majority of our refining capacity

    • Diogenes the CynicMEMBER

      +100. We would be finished in about 3 days when our fuel lines are cut. No point spending any money on defence until this is sorted as none of the hardware will be able to operate (except the nuke subs if we get them).