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Federal

Jun 25, 2014

Green-Labor stupidity on fuel excise could be prevented with an X

Allowing at least part of the rise in fuel excise indexation through would be sensible long-term politics from Labor.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

The Greens’ opposition to fuel excise indexation is, in policy terms, one of the more bizarre decisions from any side since the election.

For a government that has talked incessantly about its readiness to take tough decisions, the restoration of fuel excise indexation was the real thing. It reversed a bad Howard government decision, and it exposed the government to criticism on a subject dear to the hearts of many voters — petrol prices. And it would have minimal impacts at first, with the big gains to be had beyond forward estimates — the real beneficiaries of the decision will be the governments of the 2020s. It was good policy and politically courageous from the Coalition, and if the Liberals were able to get it past the easily gulled Nationals by waving a shiny thing called “diesel fuel rebate”, all the better.

Labor, of course, wouldn’t pass up the opportunity to oppose it. If they’d introduced it in government, the Coalition and News Corporation would have gone bananas screaming about Labor’s attack on low-income earners. But Labor knows perfectly well how valuable the measure will be down the track once they’re back in government. They were privately hoping the Greens would wave the measure through, or Clive Palmer’s motley crew and another couple of crossbenchers would. That’s not going to happen.

The Greens, however, might have been expected to back increased taxation on a non-renewable fuel and source of greenhouse emissions. Transport currently yields 17% of our CO2-equivalent emissions and, unlike electricity-related emissions, their growth has shown no signs of tapering off in recent years. The excise increase would be a carbon tax: even Tony “great big new tax” Abbott himself admitted that increasing fuel excise was “at least on one level part of the price of carbon”.

Between the excise increase and the extent to which electricity companies have been allowed to gouge customers via overinvestment, half of our emissions would have been covered by a de facto carbon price even after the removal of the current carbon pricing regime — and an effective one: electricity generation emissions have fallen significantly in recent years as demand for electricity has fallen in response to gouging, so that the stationary electricity generation sector now produces 33% of our emissions.

The Greens’ substantive objections to increased excise — about hypothecation to road funding and the diesel fuel rebate for mining companies — don’t stack up. As Peter Martin has explained, the government’s hypothecation of revenue from the increase doesn’t guarantee any extra road funding — it’s a legislative sleight of hand designed to soften the political blow of higher fuel prices, though a cleverer one than the witless “medical research fund” being used to justify GP co-payments. And the diesel fuel rebate is intended to ensure that mining companies don’t pay the road user charge component of heavy vehicle diesel fuel excise for their off-road operations — why should companies not using roads pay for roads? I’m more ready to criticise the mining industry than most in the media, but on the diesel fuel rebate, their case is sound.

And if the Greens are concerned about the impact of higher fuel excise on people in outer suburbs poorly served by public transport who are heavily reliant on their vehicles, the way to address that is through transfer payments for low-income earners, not through simply blocking the measure altogether.

Fortunately there’s a way either the Greens or Labor could rescue the measure, albeit at some cost, but with honour intact. Rather than index excise according to the consumer price index, as proposed in the measure, it could be indexed at CPI-X, with X being whatever number takes your fancy — maybe 1%. So twice a year, excise would rise by the six-monthly CPI minus 0.5%, meaning excise would grow at a level below inflation — but still grow. Being able to argue that excise is growing more slowly than inflation would be a motorist-friendly argument, while still locking in most of revenue gains and maintaining its carbon pricing effect.

There’ll be plenty more opportunities for Labor to get revenge on Tony Abbott for his wrecking tactics in opposition. Letting through much of the fuel excise increase, however, would be a sensible long game.

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23 comments

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23 thoughts on “Green-Labor stupidity on fuel excise could be prevented with an X

  1. Mark out West

    It’s so easy to denounce this as a weak willed gesture from the Greens but this was their Democrats moment.

    Why impose a tax that, like all the rest of the budget matters, would affect the poor disproportionately.

    Why impose a tax when the Govment has entrenched subsidies for the largest polluting sector.

    Dumb commentary, I might take back my renewal if this is the best you can do Bernard.

  2. Lee Tinson

    Seems to me this is one of Bernard’s less well-thought-out articles. While I agree with the broad thrust, much has been written about how this is NOT a carbon tax in any way at all. It’s just a tax, and doesn’t contain a signal. It’s my understanding that the excise was frozen as a knee-jerk to the tax-on-a-tax situation caused by introduction of the GST, and reintroducing indexing on the excise will do away with the defacto rebate that Howard gave us. What probably should happen is that the excise should be charged separately at the servo and not be subject to GST.

    Also, since I understand that only about 25% of the diesel fuel excise actually goes to roads, I don’t see the case for a full rebate for mining companies as “sound”. How about a rebate on 25% of it? And if the mining companies whinge, and threaten to go offshore, well let them. Confiscate their licenses and award them to someone else (preferably Australian) who is prepared to actually work for their money.

    Thanks,

    Lee

  3. Hunt Ian

    Mark out West might have reason to complain about Bernard’s support for renewed fuel excise indexation. Western Sydney has long travel times and little public transport, so the renewed indexation will hit hard in some places and not only Western Sydney. This was why the Green’s backed away from support but, in the the absence of the carbon tax, the excise is a good tax to discourage fuel use. In theory, that is. Abbott and Hockey have made costs to the poor such a sensitive issue with measures that reduce low incomes by 10-15% that little in the way of good policy in isolation will look good under Abbott. Perhaps another time and place. In the meantime, we need to go back on income tax cuts that needed the mining boom to look good. But Labor does not want to stick its hand up for the right solution for future increasing costs in the atmosphere that Abbott’s opportunism has fouled. Look at RET, which is a good piece of direct action, which Abbott wants to cut because it is so effective. A one term Abbott government please.

  4. Pedantic, Balwyn

    Every now and then Bernard lets economic correctness override common sense and fairness. FT indexation maybe reasonable in a different time and place, but in the context of 2014 budget policy measures that target the disadvantaged this is the straw that broke the camel’s back. Just ask low income rural voters and you’ll hear the howls of rage over imposing further taxes on them whilst the wealthy share little of the burden.
    As for suggesting that miners shouldn’t pay taxes for what they don’t use, well where did Bernard get the idea that taxes should be deployed to within a country mile of their source; how quaint!
    Labor may have loved the idea of the Coalition getting punished for good policy, but they would be better off pointing out the inequality in both the budget and the broader tax structure; and then tabling revisions to laws on negative gearing, trusts and so. I bet they won’t though.

  5. Richard

    mark out west – i agree that this may have been a democrats moment for the greens, but not in the way you mean. here’s a party of the environment refusing to pass legislation that would have significantly reduced the amount of carbon being pumped into the atmosphere. the mind boggles.

  6. Robert Brown

    BK, have you seen http://www.tai.org.au/content/mining-age-entitlement which studies how much states spend in support or mining companies (among others)?

    Mining companies do use roads, and rail and ports, etc. Surely this weakens the case for them to be exempt from fuel excise?

  7. Robert Brown

    @Lee Tinson

    It’s just a tax, and doesn’t contain a signal.

    I don’t see how that works. If something becomes more expensive, don’t people start to look for opportunities to use less of it?

  8. Robert Brown

    Is the resumption of indexation really such a imposition on the poor? As I understand it, this will mean after 3 years, the fuel tax will be $0.06 higher than it is today (assuming 5% inflation). This is about an extra $3.04 to fill a 50l tank.

    By contrast, in three years time, high income earners will no longer be required to pay the budget deficit levy. So if we are advocating equity, shouldn’t we be arguing for this to be a permanent tax rather than temporary levy?

  9. bushby jane

    There wasn’t supposed to be ANY excise on fuel when GST was introduced, remember?

  10. CML

    Maybe not all is lost yet. The Guardian is reporting at lunch time that Clive Palmer is to announce, at 5.30pm today, the PUP stand on voting to repeal the carbon tax. Apparently, Clive may be having second thoughts, and his party may NOT now be voting to abolish carbon pricing in its entirety.
    Coupled with that is Christine Milne’s statement this morning that the Greens may back the early introduction of an ETS, rather than see carbon pricing disappear completely. I think that has been Labor’s position all along?
    It is speculated that Clive may be on board with this development, if only to give the rAbbott a kick up the backside. What fun! (only joking)
    If carbon pricing remains in some form, maybe this would make it less urgent to reintroduce a petrol excise, both for environmental and economic reasons. So, if Labor, the Greens and PUP unite on this issue, the government’s repeal bills go down in the new senate! I do so hope this will come to pass.