Fuel tax credits: are they a subsidy to fuel use?
Posted 3/05/2012 by Richard Webb
Recently there has been debate over the nature of the rebate of the excise paid on fuels, paid under the fuel tax credits scheme. This FlagPost clarifies the purpose of the rebate.
The excise on petrol and diesel is a tax on business inputs as well as on final use by households. Businesses using petrol and diesel as inputs into production processes pay excise of 38.143 cents per litre. Under the fuel tax credits scheme
, eligible businesses can claim a rebate—in full or in part—of the excise that they have paid. In 2010-11, the value of these credits amounted to $5.1 billion
. The main recipient industries were mining ($2.031 billion), transport, postal and warehousing ($988 million), and agriculture, forestry and fishing ($646 million).
Taxes on intermediate goods—that is, goods used to produce other goods—can reduce output and living standards. Public finance theory
indicates that taxes should not be imposed on intermediate goods because taxes on intermediate goods distort the allocation of factors of production—land, labour and capital— between intermediate goods and final goods. Reducing taxes on intermediate goods reduces this distortion and so increases total output.
The fuel tax credit scheme is designed
to relieve industries of the excise that they pay on the petrol and diesel they use. As Treasury
notes "... fuel tax credits are not a subsidy for fuel use, but a mechanism to reduce or remove the incidence of excise or duty levied on the fuel used by businesses off-road or in heavy on-road vehicles".
The Productivity Commission prepares annually a Trade and assistance review
. The reviews identify—and where possible quantify—government assistance to industry. The reviews do not include the rebates paid under the fuel tax credits scheme as a form of assistance.
In summary, the rebate for excise paid on fuel that eligible businesses use as inputs is not a subsidy to fuel use. Rather, the rebate is designed to relieve businesses of input taxes that can reduce output and living standards. The Productivity Commission does not consider the rebate to be a form of assistance.
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