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Crikey says: why fuel taxes must go higher

Fuel excise hike? Reversing a dumb policy decision. Plus what the economic tea leaves said this week. The cuts at Fairfax: on the picket line, the importance of photojournalism, and Fairfax’s finances. Why there’s only losers from the new NBN. Helen Razer on Monica Lewinsky’s new-found life lessons. And what’s happened to the Prime Minister’s Literary Awards?

Two case studies in how public policy works. First, the influence of the media on John Howard’s decision to freeze the fuel excise, via Malcolm Farr at News.com.au this week:

I’d like to apologise in advance should a deficit tax be levied in next Tuesday’s Budget. It’s partly my fault.

This is actually a declaration of group guilt for what some reckon to be a $5 billion mistake. Back in 2001 I was political editor for The Daily Telegraph and we hammered Prime Minister John Howard week after week — often on the front page day after day — over the biggest household expenditure issue of the time — petrol costs.

The Howard government was heading for the 2001 election in November. The GST was introduced in July and there were Liberal fears ‘Howard’s Battlers’, that is traditionally Labor-voting families in Australia’s working class suburbs, were getting antsy about it.

News stories about the pain of fuel costs to households by myself and others added to the concerns and Mr Howard, no doubt feeling GST jitters, relented in early March.”

And in Crikey today, Bernard Keane on what was going on behind the scenes in the public service around 2001, when the fuel excise decision was made:

The Australian National Audit Office, however, calculated that nearly $3 billion extra ‘should’ have been spent on roads under the ALTD Act if the default 4.95 cents per litre rate had applied, because the last time the Commonwealth had varied the rate was in 1993-94.

It was rubbish: governments of both sides had abandoned that sort of approach years before. The ANAO even acknowledged in its report that roads funding ‘complied with current government payment practice’. But its officers refused to see reason and, in the face of pleas from Transport officials, insisted that, because the ALTD Act was still on the books, there’d been a $3 billion underspend on roads from fuel excise.

That was why hell had broken loose. The government was taxing motorists and not even spending the money on roads! … The government, from the prime minister down, panicked — thus the desperate call from my former department to find all the briefings that might have been prepared on the subject. There was even a story, possibly apocryphal, that the heads of the Roads Branch — one of the best, most decent public servants I ever met — had been hauled into cabinet to be personally dressed down by [John] Howard.”

The media, the ANAO and the government conspired to implement populist policy that robbed Treasury of up to $6 billion a year. Prime Minister Tony Abbott, reportedly, will reverse that decision in next week’s budget. That, at least, makes sense.

6
  • 1
    zut alors
    Posted Thursday, 8 May 2014 at 1:45 pm | Permalink

    What delicious irony that governments can’t resist implementing populist policy however all governments eventually, & inevitably, end up not being popular.

  • 2
    David Hand
    Posted Thursday, 8 May 2014 at 2:50 pm | Permalink

    This also highlights the flaw in all the table thumping going on about the taxpayer subsidising miners through a tax rebate on diesel. The fuel excise was supposedly charged to fund roads and the miners don’t use their fuel on public roads.

  • 3
    David Penington
    Posted Thursday, 8 May 2014 at 4:01 pm | Permalink

    Since the GST was introduced, the price of fuel has roughly doubled, doubling the GST on fuel. That is effective CPI indexation of a tax on fuel. Charging GST on fuel plus an indexed excise could reasonably be perceived as double dipping on the price increases and exacerbating inflation. Since Howard was very sensitive to the fuel cost impact of the GST (with an initial over-compensating reduction in excise) it was consistent of him to stop the indexation.
    It was also dishonest of him to commit the government and its ($67m from memory) advertising resources to a GST policy within 2 years of promising that it would never ever be Liberal Party policy, but that’s a different issue from a different period of nasty, mean, tricky and out-of-touch L-NP coalition government.

  • 4
    Tyger Tyger
    Posted Thursday, 8 May 2014 at 6:34 pm | Permalink

    The Australian mining industry receives $4.5 billion a year in direct government subsidies. We let the local car industry die to save a fraction of that. What’s wrong, since Sloppy Joe and Toliar insist “we all have to share the lifting”, with having a debate about that?

  • 5
    David Hand
    Posted Thursday, 8 May 2014 at 10:11 pm | Permalink

    Hey Tyger,
    How is this subsidy paid and what’s it for?

  • 6
    James Duff
    Posted Thursday, 8 May 2014 at 10:45 pm | Permalink

    The issue is that the more transport costs rise, the greater the barrier to work to those who don’t live close to city centres. There is a suggestion that people without jobs be forced to move to areas of higher employment, but those places also have a higher cost of living, and a higher barrier to entry. The most wealthy have the lowest transport costs both in money and time for their daily commute, while the lower income earners spend more in transport costs.

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