The government has made a good call in unfreezing the indexation of the fuel excise, and future treasurers will be grateful. But the decision will herald recurrent political problems for Joe Hockey.
If indeed the government has decided to restore fuel excise indexation, it’s a gutsy and correct policy decision for which it deserves credit.
It also shows the Coalition has come a long way, not merely from the Howard era when indexation was abandoned, but from the petrol price scare campaign it launched in the early days of the Rudd government — although at least that produced one of Brendan Nelson’s (unintentionally) funniest speeches.
That the Abbott government plans to restore the indexation of the petrol excise is being rumoured and reported on in the media ahead of Tuesday’s budget. There’s a strong case for higher petrol excise. Ignore the rentseekers of the NRMA and Australian Automobile Association — the current ~$15 billion per annum in excise revenue does not cover the costs that motorists inflict on the community, which include not just road building and maintenance but congestion costs, which are currently around $15 billion a year alone and predicted to reach $20 billion per annum by 2020.
Moreover, higher petrol excise will function as a de facto carbon price: based on 2008 CSIRO figures, a 10 cent per litre increase would be equivalent to a carbon price of $40 a tonne (2008 prices). This is considerably braver than the Gillard government managed — it refused to place the carbon price on petrol and would only have levied it on heavy vehicles from July 1 this year. So full credit to the Coalition for being prepared to implement a carbon pricing measure even Labor and the Greens didn’t want.
Restoring indexation won’t help the immediate return to surplus, but the treasurers of later this decade and the 2020s will benefit from billions in extra revenue as a consequence — just as all now rue the freezing of indexation 13 years ago.
Politically, however, it risks potentially greater damage than the deficit levy, which now looks like it will only apply to the very top income-earners and thus be unnoticed by most voters, regardless of the high dudgeon accompanying its announcement. It’s not so much that the indexation will represent a clear broken promise — yet another, despite Treasurer Joe Hockey’s embarrassing insistence that the Coalition never promised no new taxes, that black is in fact white and that water isn’t wet. For all the talk about Abbott’s “Julia Gillard moment” and losing trust, governments can get away with breaking promises as long as they convince voters it’s in the national interest — John Howard did it repeatedly. Gillard’s biggest failure was to not convince voters that a carbon price was good for Australia, rather than about securing the support of the Greens.
Instead, the problem will be that every six months — if that is the regularity with which excise will be indexed — there’ll be occasion for a new blow-up about petrol prices and the role of government taxation, and a reminder to voters of the government’s decision. If Labor opposes indexation, it will be a political gift that keeps on giving, twice a year.
It’s also particularly problematic in electorates where large numbers of voters are highly car-dependent, like in western Sydney. In early 2013, Abbott tried to sell himself as a kind of honorary westie, leading a party that would make western Sydney its new heartland. Despite copious assistance from The Daily Telegraph, that failed to transpire at the election. Higher petrol prices will make the chances of future success even dimmer. It’s reported that the government will try to offset this by emphasising its infrastructure investment — but, of course, there’s no point in raising excise if all of the rise is going straight into more roads, unless you cut roads spending elsewhere and pocket the savings that way.
Nonetheless, if Hockey and Abbott can manage the restoration of indexation, they deserve credit for a substantial contribution to fiscal sustainability. The treasurers of the future, of both sides, will thank them.