The Sydney Morning Herald got the commercial shock jocks and their ABC counterparts talking this morning with this story
suggesting economists are calling for higher petrol taxes. The argument
goes that Australian petrol prices are the 4th lowest out of 29
measured in the OECD and we need to also think about environmental

It was a curious time to manufacture such a story given that the budget
is overflowing with tax revenue and petrol prices are headed towards
$1.20 a litre as global oil prices push though US$60 a barrel.

Peter Costello’s defence is quite strong. When the petrol excise was
cut to 38c and indexation removed in 2001, the Commonwealth surrendered
loads of revenue upside. The treasurer is telling anyone who’ll listen
that petrol prices would be 14c a litre higher and the federal budget
more than $2 billion a year better off if the old system had remained in

Isn’t it funny how the government is quite happy to do the numbers on petrol indexation but is fighting The Australian’s
FOI editor Michael McKinnon through the courts over his attempt to
access Treasury numbers on bracket creep as it relates to income tax.

The removal of indexation meant the government surrendered the ability
to announce progressive cuts in petrol taxes as it does every other
budget with income tax.

Labor is wrong to claim that Treasury is enjoying a windfall from
petrol excise because it’s fixed at 38c a litre. Petrol excise revenue
is only forecast to rise by $40 million to $7.4 billion in 2005-06 and
diesel excise is projected to rise by $320 million to $6.42 billion
next financial year. Soaring petrol prices actually depress
overall petrol excise revenue because consumption falls as motorists
look at ways to save money.

However, Canberra is enjoying a major revenue windfall from another oil
tax – the petroleum resource rent tax – which takes a slice of profits
from oil fields such as Bass Strait and some of those in the Timor Sea.

When you consider that higher petrol prices do slow overall growth and
give business higher tax deductible costs, the government and consumers
would probably be as one in wishing these soaring oil prices would go
away. However, shareholders in the likes of Woodside Petroleum and
BHP-Billiton would take a hit and their taxes have been driving the federal budget further into surplus.

As with many things economic, it’s a case of swings and roundabouts,
but the one thing that shouldn’t happen is a further cut in the fixed
rate of petrol excise.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey