Here’s a quick quiz: who said this in the House of Representatives budget debate just before 6pm on May 28, 2008?
“The [Rudd] government wants to watch fuel prices; we would actually like to cut them by cutting fuel excise, by actually reducing taxes. That is one way of actually reducing prices, but this seems to be lost on those opposite. The Coalition has form on cutting taxes on petrol and diesel: a 6.7c a litre cut on excise in 2000 and a further 1.5% cut in 2001. There was also the abolition of indexation, which all meant that today petrol prices in this country are 20c a litre less than they would have been were it not for those measures introduced by the Howard government.”
The speaker was a promising (in his own mind) member of the then federal opposition who went on to keep the boats out, give coal a parliamentary debut, couldn’t hold a hose and repeatedly went missing when Australia was in crisis. Yes, it was Scott Morrison, and he was as wrong about cutting excise on petrol then as those calling for it are now.
For all the rising clamour for cuts to fuel excise, the not very numerate are ignoring one fact: the higher the petrol price, the lower the benefit from cutting excise. The fuel excise at just over 44 cents a litre, accounts for just under 26% of the fuel price at $1.70 a litre — what the price was a month or so ago. At the current price of $2.20 a litre, the excise accounts for 20%, so the impact of excise on the price has fallen sharply in a month.
Halving the excise for a year, as Senator Rex Patrick wants, could cut the price to less than $1.50 a litre when the retail price was around $1.70, but to a still very high $2 a litre when the price is around current levels at $2.20 a litre.
The smaller proportionate take represents the freezing of the excise from 2001 to 2014-15 by successive Coalition and ALP governments. The extra now in the pump price owes more to Vladimir Putin’s invasion of Ukraine, the western sanctions against Russia and the intransigence of Saudi Arabia – the lead OPEC country — to ending its production cap and boosting output.
Russia is the main non-OPEC member of the group currently controlling world prices, and an Australian cut to excise will not have any impact on price pressures. We are paying more because of the attitudes of two authoritarian governments who will continue to push prices higher because it suits them. Australian motorists will be collateral damage.
And when petrol prices fell to $1 a litre or a little less (90-99 cents) in late April through early June 2020 (when global oil prices plunged to $10 a barrel and went negative for a session in New York at minus $US37 a barrel in April of the same year), the excise accounted for 44% or more of the selling price. No one was calling for the excise to be cut then because it accounted for so much of the pump price.
Because the Howard government abolished indexation (a gift from a gutless John Howard and Peter Costello), the excise takes a smaller proportion of the eventual selling price — meaning petrol producers, importers and retailers enjoy windfall profits when prices surge, as they are now.
In 2001, just prior to the federal election, the Howard government froze Australia’s fuel excise at 38.14 cents a litre and abandoned the twice yearly CPI increases. That freeze lasted until 2014 when an under-pressure new coalition government was searching for revenue sources as well as tax cuts and cuts to government spending. Tony Abbott and Joe Hockey seized on indexation as a new revenue source and it resumed in the 2014-15 budget. As a result excise is up just over 6 cents a litre between then and now – in that time oil and petrol prices eased from late 2014 as OPEC collapsed under the pressure from surging US oil production and the slow rise of renewables.
So now indexation offers another weak prime minister (ScoMo) and federal treasurer (Josh Frydenberg) a convenient fiddle to show they are extending a helping hand to a mostly middle-class group of people. And people in higher income brackets with their Audis, Mercs, Lexis and Beemers are not feeling the pain of higher petrol prides at all — many have their vehicles subsidised as part of their employment packages or earning more than enough not to feel the pain of higher prices.
More and more people in this group are buying electric vehicles (Teslas mostly in Australia) which do not need petrol and therefore their owners do not have to pay excise in their petrol charges — but you can bet that more than one will whine about missing out on a lurk.
No doubt the Morrison government will again trot out ACCC to play bully regulator (after all, an excise cut would be part of an election budget) to make sure prices are cut and stay cut. That will be a smoke and mirrors effort from all concerned because the cut will only provide a partial (and tiny) easing of cost of living pressures.
But cutting or freezing indexation on petrol discriminates only benefits car owners and those who use their vehicles. Millions of Australians (especially those in their late teens and early 20s) have low levels of car ownership or catch public transport to and from work and will not get any benefits from the excise and lower prices (if prices fall). It’s those who are on low or minimum wages or hours who need public transport who are being hardest hit by cost of living pressures and will be further hit as inflation edges higher. These are also the same group that are seeing low wage rises as their real wages grow less than inflation.
And finally, consider those who use diesel in their vehicles — not the tradies and others in the cities with their HiLuxes and other urban cowboy vehicles, but farmers and miners. They are already on a sweet deal – they get much of their excise back.
The federal government has three fuel consumption subsidy schemes: the Diesel Fuel Rebate Scheme (DFRS); the Diesel and Alternative Fuels Grants Scheme; and the Fuel Sales Grants Scheme. Only the DFRS specifically offsets the cost of excise on diesel. A rebate of 43.2 cents a litre is available to Australian businesses that consume diesel away from public roads (farms, mine sites, etc), the idea being that such consumption should face reduced taxation because it is less reliant on government spending for roads.
Last November, Andrew “Twiggy” Forrest, the chairman and biggest shareholder in iron ore exporter Fortescue Metals Group, set off a furor among those who use this rebate to their benefit by urging it to end in 2025. Of course the unkind pointed out that he was speaking through his “green hydrogen as a transport fuel” hat.
But the Minerals Council of Australia, in criticising Twiggy’s proposal, provided a nice list of those industries where the rebate is proving more than useful.
“The fuel tax credit scheme is not a subsidy. The cost to taxpayers is zero. Any move to reduce eligibility for the fuel tax credit scheme would introduce a tax distortion by imposing a levy on industries that are reliant on diesel fuel to generate power and operate heavy machinery off road or in heavy on-road transportation vehicles,” the council blathered. “Fishing fleets, tourism craft, farming machinery, mining and resources vehicles, ferries and tug boats should not pay a road tax.” To that you can add nurseries and other horticultural industries.
And finally there is the bigger picture — the federal government has options. In 2019-20 the government collected $5.6 billion from petrol and about $11.8 billion from diesel (much of which was reimbursed through diesel tax rebates). The petrol excise should be maintained, increased regularly and regarded in the same way as the excise on tobacco (now frozen because it has boosted inflation by more than necessary in recent years) has been used to wean people off smoking.
The net annual revenue from all fuel excises, according to the Australian Automobile Association, is about $11 billion, which hasn’t moved very much for the past decade. That is supposed to finance around $44 billion in spending on roads over the four years from 2020-21. Redirecting it towards decarbonisation spending and public transport of all kinds — subsidising electric buses, taxis and ride share vehicles for instance — would make more sense.
It could maintain the excise and redirect the revenue towards subsiding the take-up of EVs and building the support infrastructure of charging stations or subsiding service station operators to provide charging and to reduce their carbon fuel storage at the same time. Funds from the tax could also go to research and to helping small and medium businesses adjust. Windfall profit taxes on oil companies (mostly Ampol, Viva/Shell, BP, who would whinge mightily) could be used to help support lower-paid people who are forced to use their vehicles for work purposes.
After all, Scott Morrison showed no compunction as federal treasurer in levying a special tax on the big four banks designed to extract $6.4 billion in extra tax over four years. Why not on oil companies at all levels? Why are they sacrosanct and the big four banks not?
One last point: there is a way of countering higher prices, and we have just done that very thing — the work from home movement during the COVID pandemic. It would be quite easily for governments (especially states) to allow people to work from home again until petrol prices fall back to say, $1.70 or $1.50 a litre. The world didn’t end; business went on; the economy fell, steadied and then rebounded. It could be highly recommended for financial health reasons, not physical health.
