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Fuel Tax Credits Is A Tricky Business

Critics of Australia’s fuel credit system have called for the end to fossil fuel subsidies. They also highlighted the cost it has on Australian taxpayers as well as the impact it has on Australia’s budget. According to the Greens, ending fossil fuel subsidies for big mining companies would help save Australian taxpayers A$21Billion over the forward estimates (the next 4 years). Larissa Waters, Greens deputy leader, stated that her party supported.

Eliminating the A$24 Billion in forward estimates over four years. This is money that goes to fossil fuel sectors in cheap diesel and accelerated appreciation. These numbers were derived from the policy costings prepare by the Parliamentary Budget Office (PBO), ahead of the July federal elections. PBO’s 2016 post election report, which details budget impacts from various election commitments and notes:

Greens Propose Ending

The Greens propose ending fuel tax credits in all industries, except agriculture, and ending accelerated asset loss for aircraft, oil and gas industry, and vehicles (except those used for agricultural purposes), among other measures. There are many opinions on whether fuel tax credits are a subsidy or not.

Fuel users must pay a fuel excise tax of 39.5 cents per gallon. In certain cases, businesses may be exempt from this obligation. This exemption is in the form of a credit for fuel tax (excise/customs duty), which is include in the price.

These tax breaks include exemptions from fuel excise for off-road fuel use by primary producers and the mining industry. A partial rebate is available for large trucks exceeding 4.5 tonnes. The truck owners pay a road usage fee instead of the excise.

According to the PBO, the Australian Greens proposal to abolish the fuels credit for all industries but agricultural businesses would result in an increase of A$4.5 billion per year in the budget balance.

The Assumptions Are Unpack

It’s important to note the assumptions behind these calculations. The PBO states that its costing assumes business fuel consumption does not change due to the policy. The goal of a higher tax to reduce fuels consumption and pollution means that the PBO’s report estimate of revenue gains will be overestimate.

Uncertainty about the future also means that any revenue estimates for such a period are not certain. According to the PBO. Many view the 39.5 cents per litre fuel excise as a form of user-pays fees to pay for government spending on public roads. For 2014-15, the federal, state, and local governments will spend more on road construction and maintenance than they have on fuel excise, which is A$17.8billion, and on motor vehicle taxes, which are A$9.5billion.

Representatives of the mining industry have made this the rational argument for exempting fuels excise. They point out that the mining industry constructs and maintains its roads. Similar arguments can made for the fuels use by primary industries for off-road purposes.

Fuel Taxes Encourage

Others believe that fuel taxes encourage people to use less gasoline and reduce their carbon emissions. A tax of 39.5 cents per gallon is a large tax per ton of equivalent CO2. The fuels excise, if it were view as a tax on greenhouse gases, would be 39.5 cents per gallon. This is more than A$150 for each tonne of greenhouse gases from the combustion of fuel. It is also higher than the A$24 per-tonne carbon price set by the Gillard government and the much lower European Union pollution permit price. It’s a stretch of credibility to claim that the fuels excise is a tax on pollution.

I would support the 2010 Henry tax review’s recommendation for a revenue-neutral reform package that replaces the fuel excise tax and the state motor vehicle tax with a road use charge and a congestion tax. This reform would exempt the mining and agricultural sectors from the tax components on road fuels and congestion. However, they would have to pay a portion for external costs related to greenhouse gas emissions.