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Federal

Mar 3, 2011

Our carbon addict tax system

If you compare the money spent encouraging fossil fuel usage compared to how much it spent on climate change programs in recent years, it shows we have a pro-carbon tax system, so strongly supportive of fossil fuels that it would outweight a carbon price.

Earlier this week, the Australian Conservation Foundation released an analysis comparing how much the Federal Government spent encouraging fossil fuel usage compared to how much it spent on climate change programs in recent years.

We asked the ACF for their data and then supplemented it with our own research to try to provide a longer-term take on the comparison. The ACF has compiled data on climate change programs announced in budgets going back to 1997, so we tried to collate data on all the rebates, tax expenditures and other types of spending that encourage fossil fuel use back to 1997 as well.

Some caveats are in order. The chief source for the data is Treasury’s annual Tax Expenditures statement, which tries to nail down how much revenue is lost through tax concessions, exemptions and deductions. The quality of Treasury’s Tax Expenditures work has improved each year, but that means the further you go back, the less data there is. Where necessary, we’ve used a deflator to simply reduce the value of a fossil fuel subsidy by inflation, and tried to err on the conservative side in doing so. We’ve also used the biggest figures we could find for climate change programs.

In some years, the forecast expenditure on climate change programs hasn’t eventuated, but rather than use the real figure, we’ve given government the benefit of the doubt and used the higher forecast figure, not the actual spending. On the other hand, we calculated the increase in the lost revenue from the 2001 ending of fuel excise indexation differently to the ACF to provide what we think is higher, more realistic figure.

The first blush result confirms that the enormous disparity identified by the ACF from 2007-10 is only the worsening of an existing problem from the 1990s. This is the comparison of the ACF’s identified fossil fuel subsidies versus climate change programs, in millions of dollars.

Yes, the little green stuff down the bottom represent climate change programs.

The big increase in fossil fuel subsidies in the last decade is mainly driven by the Howard Government’s panic-stricken decision to end fuel excise indexation in 2001 (the story behind how that came about, and the appalling misjudgement of the ANAO in causing it, is a tale for another occasion).

That decision deprived the Federal Government of billions of dollars in fuel excise by ending the long-standing practice of indexing fuel excise, meaning each year the government loses more revenue as prices and fuel usage go up. But even if you ignore the fuel excise loss altogether, on the basis that failing to increase the nominal rate of tax on a fossil fuel isn’t encouraging its use, you still get an alarming disparity.

This is the same comparison without the lost revenue from the fuel excise indexation:

Still — so what? I fear I’m not telling you anything you don’t already know, at least in the broad, about the priorities of successive Federal Governments regarding climate change. But let’s dig a little into the figures. The big difference — apart, obviously, from the bloody great disparity in dollars — is climate change programs are just that — programs, usually grants programs, administered by bureaucrats, and subject entirely to the whim of politicians.

Some years they rise, when political imperatives dictated more money for climate change, or there’s a more effective minister in the Environment portfolio. Other years they fall. And some years budgeted allocations weren’t spent fully, because that’s the nature of program administration.

Fossil fuel subsidies generally aren’t programs. They’re usually tax expenditures — that is, they’re built into the tax system as automatic deductions or rebates or exemptions for taxpayers, corporate or individual. Unlike programs, they generally don’t have a finite, four-year allocation — they just keep going on, and they’re not administered like programs. And whole industries rely on them. Ask the local car industry whether we should continue to provide a Fringe Benefits Tax concession for company cars or car parking. Ask the aviation industry — among the most intensive CO2-e emitting industries — whether we should tax aviation fuel like every other fuel. That’s what makes it so hard to curb these handouts to fossil fuel industries.

The one example of a government moving to cut one of these handouts was the Rudd Government’s 2008 Budget decision to end the excise holiday on condensate. The move drew — you’ll never guess — dire warnings from the energy industry of massive impacts on companies like Woodside, who would have to pass on the cost. Woodside’s Chief Executive Sook Don Voelte called it “sovereign risk”.

The tax passed with the support of Nick Xenophon and Steve Fielding later in 2008 and not a peep has been heard on the issue since.

The problem with the removal of the condensate handout was its atypicality. We have a taxation system that is pro-carbon, strongly so. Even a high carbon price is going to be pushing against $10+ billion a year worth of fossil fuel subsidies. In fact let’s look at one final graph. We have indexed the current level of fossil fuel subsidies out several years — not the level at which they’ve been increasing recently, just indexed by inflation. And against that we put the forecast revenue from the last iteration of the CPRS.

It’s a bit of a gimmick, but illustrative of just how strongly pro-carbon our taxation system currently is. And on current political form, there’s a greater chance of a carbon price than of anyone taking the razor to fossil fuel subsidies.

*Additional research by Crikey interns Grace Jennings-Edquist and Samantha Kodila

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113 comments

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113 thoughts on “Our carbon addict tax system

  1. Sir Lunchalot

    I heard that Rob Oakeshott has received $36,500 since the election for chairing two Government Committee, thats on top of his salary.

    Nice work when you can get it.

    Why would he want to buck the trend and upset PM Gillard or President Brown?

  2. Liamj

    Good work! You really gave them the benefit of doubt with budgeted rather than actual expenditure on CC programs, in Howards Natural Heritage Trust spending 20-60% of promised was normal, IIRC.

    I look forward to the Institute for Public Affairs launching a campaign on this obscenity of government subsidy, unless they really are the hypocritical whores everybody says they are.

  3. Mark Duffett

    I’ve never quite bought this. If I’m reading BK correctly, the lion’s share of those apparently huge fossil fuel subsidies is in the form of various rebates and exemptions from fuel taxes and excises. But doesn’t the fact that we have fuel taxes and excises at all count against the ‘subsidies’? Doesn’t the revenue from fuel taxes etc far outweigh that foregone?

    That’s certainly not my understanding of what a subsidy is.

  4. Mick S

    @Sir Lunchalot
    I heard you invent stories without any foundation whatsoever, in order to make a political point. Nice work if you can get it.
    Of course, you could easily prove me wrong by providing a reliable and independent source.
    But, why would you want to buck the trend?

  5. Apathy

    Sir Lunchalot – I am not sure how that comment is that relevant to the article. All politicians no matter which carriage they sit in on the gravy train get paid to be on committees. It’s a trough that they have all had their snouts in since Noah said to God “I’m not going to get those stains out of the floorboards with environmentally friendly detergents.” Chances are if he had of been a Nat or Independent who didn’t hold the balance of power, he still would have been on a few committees. Yes I know the Chair gets more than a Member but it’s not millions more and most know it’s far easier to just be a Member and soak up the Gravox than have the extra responsibilities that comes with being the Chair. Some could argue there is a benefit to his ego but it’s still not relevant to BK piece.

  6. Sir Lunchalot

    @ Mick S.

    Incorrect mate, it was mentioned this morning in Senate estimates. I heard the $36,000 figure, thought it was $36,900, but errered and said $36,500. Its definately over $36,000. I expect you will see it reported in tomorrows papers.

  7. kuke

    As The Age reported on Tuesday:

    “The analysis comes as documents released under freedom of information laws showed bureaucrats had identified up to 17 programs costing more than $8 billion a year that may have to be cut for Australia to meet a G20 agreement that member countries eliminate inefficient fossil fuel subsidies that lead to wasteful consumption.

    Treasurer Wayne Swan has argued that Australia had no programs that met the G20’s definition of a fossil fuel subsidy.”

    They have to go.

  8. Dr Strangelove

    Great research. Well if a carbon price replaces the fuel excise that will stop the problems of ceasing to index it (especially if its set above CPI increases as proposed).

    You could almost wind back those expenditures instead of putting a price on them. Guess that is just a question of which would result in the least blow back from industry…

  9. freecountry

    Mark Duffett – Yes, all of the fuel-excise related items listed are changes to concessions, deductions, or indexation, and not one mention of the fact that the petrol and diesel excises exist in the first place! Or that an LPG excise will start on 1 July this year at 2.5 cents per litre, upsetting those people who have invested in converting their cars to low-emission. Not one mention of public transport expenditure, anywhere.

    Embarrassing to mention the fuel excises, of course, because due to a combination of inadequate investment in public transport, even less adequate investment in freight transport, and dysfunctional land markets locking people into living far from their work places, that particular carbon pricing mechanism has no effect on behaviour at all.

  10. Mick S

    @Sir Lunchalot

    You have still not provided a source.

    Your comment “mentioned in Senate estimates” (not, as you concede, yet published), combined with an attempt to evade discussion of the issue (carbon tax) while instead launching a personal attack on a perceived opponent makes you sound suspiciously like a party hack.

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