Background Paper 5 1995-96'Beer and Cigs Up!': A Recent History of Excise in Australia


Index
Denis James
Economics, Commerce and Industrial Relations Group

Contents

 

Major Issues

  • In 1995-96, the Commonwealth expects to receive around $16.5 billion, or 13.9 per cent of total Commonwealth tax revenue, from customs and excise duties. Of this amount, $13 billion takes the form of excise collections while $3.5 billion will be raised from customs duties. Of the excise collections, $10.3 billion will be raised from petroleum products, $1.1 billion will be raised from alcohol and $1.6 billion from tobacco products.
  • An excise is a tax imposed upon the domestic production of a specified product. Customs duties are taxes imposed upon imported products. In order to achieve equitable tax treatment, a nexus generally exists between the rates of excise duty imposed on domestic production and the customs duties imposed on imports.
  • Customs and excise duties were the main sources of taxation available to the Colonies prior to Federation. Upon Federation, section 90 of the Constitution gave the Commonwealth the exclusive power to impose duties of customs and excise.
  • Duties of customs and excise were the sole source of Commonwealth taxation until 1910, when land tax was imposed. During World War 1, the Commonwealth introduced a range of new taxes, including income tax, entertainments tax and estate duties. Over the first two decades of this century, the Commonwealth also had to provide significant grants to the States to compensate them for the loss of their customs and excise revenues.
  • Virtually all excises in Australia have been applied as 'specific' duties, that is, as a rate of duty per unit of production. This has required excise rates to be raised from time to time to prevent tax collections from being eroded by inflation. This problem was systematically addressed for the first time in the initial Hawke Budget (August 1983) when it was announced that excise rates would be adjusted at six-monthly intervals in line with movements in the Consumer Price Index.
  • In addition to being an important source of revenue, excises have also been used to regulate social behaviour. Over the last 3 years, there have been large increases in excise rates on tobacco products, designed to curtail smoking. In both 1984 and 1988, excise arrangements on beer were altered to favour the consumption of low alcohol beers. The 1993 Budget imposed a surcharge on leaded petrol to encourage the use of less polluting, unleaded fuel.
  • Excise duties have also been used to facilitate cost recovery in the provision of Commonwealth services. Between 1926 and 1959, a component of Commonwealth duties on motor fuel was explicitly earmarked for road funding. The earmarking of fuel taxes for roads has again applied since 1982. Duties applied to aviation gasoline and aviation turbine fuel have also been used to recover the costs of providing airways services, air safety regulation and other aviation facilities.
  • Excises are quite regressive taxes, in that households on lower incomes tend to spend a higher proportion of their income on the consumption of excisable goods than higher income households. Analysis of household expenditure patterns shows that the most regressive excises are those on tobacco products.
  • Where excises are imposed upon inputs into other industries (as in the case of fuel) economic efficiency is likely to be reduced due to their distorting effect on the pattern of national production. This arises firstly from the fact that rates of excise vary considerably according to the type of fuel used and the industry using the fuel and secondly, because resources are redirected away from those industries which use fuel more intensively. The Government has been urged by several of its major advisory bodies, such as the Industry Commission, to examine the whole question of the impact of intermediate input taxation on economic efficiency.

Introduction

Experience has shown that movements in excise rates and revenue collections on refined petroleum, alcoholic and tobacco products are of considerable interest to Parliamentarians and their constituents. The aim of this paper is to provide a comprehensive catalogue of the changes in excise rates on major excisable products over the past three decades and to give a brief explanation of the reasons underlying such changes.

Prior to Federation, the main tax revenues available to the Colonies were duties of customs and excise. In 1896-97, for example, customs and excise represented 76 per cent of total taxation revenue in the Colonies. Upon Federation, the power to raise such duties was ceded exclusively to the Commonwealth under the provisions of section 90 of the Constitution(1). This is one of the very few exclusive powers granted to the Commonwealth. Most of the Commonwealth's powers are concurrent with those of the States, although section 109 of the Constitution allows Commonwealth law to be paramount in the event of any inconsistency between Commonwealth and State law. The Commonwealth is bound to impose excise and customs duties, or any other taxation for that matter, on a nationally uniform basis under the provisions of section 51(ii) and section 99 of the Constitution.

In the first two decades following Federation, there was a need for considerable grants from the Commonwealth to the States to compensate them for the loss of their customs and excise revenue. However, during this period the States, which had been levying small amounts of income tax, began to develop this as a primary source of tax revenue. Of course, the States also derived a reasonable amount of non-tax revenue from other sources, such as railway profits, land sales and royalties. However, it was not until the 1920s that the States began to become more financially independent of the Commonwealth. Whereas in 1909-10, Commonwealth grants made up 31 per cent of total State revenue, by 1918-19 this proportion had declined to only 17 per cent, stabilising at around 14 per cent by 1929. This situation lasted until 1942, when the Commonwealth took exclusive control of the income taxing field under the Uniform Taxation Arrangements.(2)

Naturally, customs and excise duties were also the major revenue source available to the fledgling Commonwealth Government. They were the sole source of Commonwealth tax revenue until 1910, when Commonwealth land tax was levied. The tax system was further extended during World War I when, in 1915, the Commonwealth began to impose income taxation and also introduced a range of other taxes to finance the war effort. By 1918-19, customs and excise duties raised 53 per cent of Commonwealth taxation revenue, income tax accounted for 32 per cent and the remainder was raised from other taxes such as land tax, war-time profits tax and estate duties.

However, even as late as 1938-39, for example, customs and excise duties still contributed 63 per cent of Commonwealth tax receipts, income tax amounted to 16 per cent and sales tax raised 13 per cent. This situation changed dramatically after 1942, when the Commonwealth became the sole collector of income tax. By 1946-47, for example, customs and excise duty contributed only 27 per cent of Commonwealth taxation, while income tax raised 54 per cent.

Customs and excise duties are still very important taxes today, even if they are not as significant as in previous times. In 1995-96, such taxes are estimated to raise $16.5 billion dollars, or 13.9 per cent of total Commonwealth tax revenue. Of this amount, $13 billion will be raised from duties of excise and $3.5 billion will be raised from customs duties. Of the excise collections, $10.3 billion is to be raised from duties on refined petroleum products, crude oil and LPG, while the remaining $2.7 billion will be raised from excise on tobacco and alcoholic products. Table 4 shows Federal excise receipts from major excisable products since 1970.

1. What is an Excise?

An excise is a tax which is imposed upon goods which have been produced domestically, as against customs duties which are imposed on imported goods. Of course, in order to achieve equitable tax treatment, a nexus generally exists between the rates of excise duty imposed on domestic production and the customs duties imposed on imports. An excise is usually applied at the point of production, for example, being paid by the oil refiner or by the cigarette manufacturer. In this respect, an excise is different from a sales tax, which is usually imposed at the wholesale or retail level and which generally does not discriminate between domestically produced and imported goods. This concept of what constitutes an excise appears to differ from the interpretation of the High Court which, in its wisdom, has defined an excise to be a tax on goods applied anywhere in the production or distribution chain. It is this broader definition, in conjunction with section 90 of the Constitution (which gives the Commonwealth the exclusive power to levy customs and excise duties), which has effectively prevented the States from applying any form of tax on the production or distribution of goods.(3)

It should also be noted that duties of customs and excise are only imposed on products consumed within Australia. Duty is not payable on any products which are exported. This includes fuel used by ships plying the international trades or aircraft flying international routes.

Although excise has traditionally been applied to alcohol, tobacco and petroleum products, a range of other products have been excisable at various times in the past, including such commodities as starch, rice, sugar, saccharin, glucose, golden syrup and canned fruit. One reason for the popularity of excises is that they are easy to impose on goods of a relatively homogeneous nature and produced by a small number of producers. They have also frequently been applied to products which are characterised by relatively 'inelastic' demand, that is, despite an increase in the price of such commodities, demand for them does not fall by a proportionately large amount. Hence, excise increases on such goods will generally be translated into increased revenue flows to the government, making them an excellent tax base.

An excise may be applied as a specific tax or on an ad valorem basis, although most excises in Australia have been specific. A specific duty is one which is applied per unit of production, for example, so many cents per litre of petrol. An ad valorem tax is levied on the value of production. Earlier this century, for example, certain agricultural machinery was taxed on the basis of a specified percentage of the value of the equipment produced.

One problem in imposing a specific tax, of course, is that the tax rate must be continually raised to prevent inflation from eroding the tax collections. It was for this reason that the Hawke Government announced, in August 1983, that the excise rates on 'traditional' commodities (that is, refined petroleum, tobacco and alcoholic products) would be indexed, at six-monthly intervals, to changes in the consumer price index (CPI). Since 1983, excise rates have been increased in early February, based on the CPI increase in the preceding September and December quarters, and in early August, based on the CPI increase in the preceding March and June quarters(4). The indexation factors which have been applied to excise rates since 1983 are shown in Table 5 in the Appendix.

While excises are important as a source of revenue for the government, they have also frequently been used to regulate community behaviour. There have been sharp rises in tobacco excise rates in recent years to discourage smoking. The formula currently used to set beer excise considerably favours low-alcohol beer, encouraging a switch to that beverage. The 1993 Budget imposed a higher rate of excise on leaded petrol to make it more attractive for motorists to move to less polluting, unleaded fuel.

2. Excise on Refined Petroleum Products

Taxes on various petroleum products have been applied by the Commonwealth since Federation. Most of these taxes took the form of customs duties in the early part of the century and excises only began to be imposed once domestic production commenced.

The details of the imposition of excise on each individual petroleum product will be discussed below. However, there was a significant factor which affected the excise rates on all refined petroleum products in the period March 1986 to December 1987. This concerns the nexus which the Government made between excise rates on refined petroleum products and excise collections from the crude oil levy during that period.

Under the Commonwealth's crude oil taxation scheme, a levy was collected on the production of crude oil from certain 'old' wells, mainly in Bass Strait. The crude oil levy, which itself was a form of excise, was related to the international price of oil. In this sense, the levy could almost be regarded as a 'pseudo' resource rent tax. As international oil prices rose and profits from the old wells increased, the levy collections would increase, and vice versa(5).

When world oil prices began to decline in 1986, Commonwealth receipts from the crude oil levy also began to decline. Faced with a difficult budgetary situation, the Government decided to compensate for most of the loss of crude oil levy receipts by increasing the excise rates on refined petroleum products. This explains the large increase in all refined petroleum products excise in that year.

The Government pledged, however, that if oil prices rose and crude oil levy collections increased, the excise rates on refined petroleum products would be reduced. This pledge was adhered to and, over the period 1986 to 1987, there were frequent fluctuations in refined petroleum products excise rates as world oil prices varied. This procedure, superimposed upon the six-monthly indexation process, explains the large number of different excise rates applicable to all refined petroleum products over the period in question. It was only at the end of 1987, when changes were made to the crude oil marketing arrangements, that the nexus was eventually broken.

Table 1 in the Appendix shows excise rates on major refined petroleum products since 1956 while excise collections from petroleum products are shown in Table 4 in the Appendix. It might be noted that virtually all refined petroleum products excise is derived from petrol and diesel. In 1995-96, for example, of the estimated excise collections of $10.3 billion, $2.4 billion will be raised from excise on leaded petrol, $3.9 billion from unleaded petrol and a further $3.9 billion from diesel (the figure for diesel being gross collections before rebates are paid). Excise on all remaining refined petroleum products amounts to a mere $164 million.

2.1 Excise on Petrol and Diesel

Petrol has been taxed by the Federal Government since early this century. The tax originally took the form of a customs duty, since all petrol was imported. With the establishment of domestic refineries, petrol excise was first imposed in 1929 at the rate of 1 penny per gallon (0.18 cents per litre).

Over the period 1926 to 1959, there was formal hypothecation of petrol excise for Commonwealth roads grants to the States,(6) although it should be noted that, apart from 192627, there was never any time when roads grants exceeded the amount of petrol tax collected. During this period when hypothecation applied, petrol excise was raised on a number of occasions in order to generate sufficient revenues to finance road funding programs.

Excise was first applied to diesel in 1957. Given the link which existed between petrol taxation and road funding, it was felt that the users of diesel powered vehicles should also be making a contribution to roads. Excise was initially imposed at the rate of 1 shilling per gallon (2.203 cents per litre), which was slightly higher than the excise on petrol at the time (2.108 cents per litre). It is interesting to note that the excise on diesel always remained marginally higher than that on petrol until August 1973, when the two rates were made equal.

Since the primary purpose of imposing the excise on diesel was for road cost recovery purposes, it is not surprising that the excise was only paid on diesel fuel used by on-road vehicles. All off-road users of diesel were exempt from the excise. This remained the case until 1982, when a variety of off-road users were also required to pay some or all of the excise. This will be described in more detail below in the section dealing with the diesel fuel rebate scheme.

In 1959, the nexus between road funding and fuel taxation was broken. The Treasurer, Mr Holt, argued(7) that it was an unsound practice to allocate the proceeds of any one tax for one particular class of expenditure in that it cut across the fundamental budgetary principle that all government receipts should be paid into a common account from which particular expenditures can be met by lawful appropriation. Moreover, Mr Holt argued that receipts from fuel excise had fluctuated greatly in recent years, leading to uncertainty in the level of road funding for the States. By breaking the nexus, a more predictable program of road funding could be provided to the States.

Over the period from 1959 to 1982, petrol and diesel excise was regarded simply as a general revenue raising measure and was increased from time to time in response to budgetary needs. This situation changed in 1982. In that year, the Fraser Government felt that it had to react to the criticism that the level of real road funding had been falling significantly since the late 1970s. In August 1982, the Government decided to boost road funding by around 50 per cent by initiating the Australian Bicentennial Road Development program.

Under the terms of that program, a surcharge of one cent per litre was applied to duties of customs and excise on petrol and diesel fuel from 17 August 1982 until 30 June 1983, when the surcharge increased to two cents per litre and remained at that level until the end of the program on 31 December 1988. This had the effect of raising the excise rate on petrol and diesel from 5.155 cents per litre to 6.155 cents per litre on 17 August 1982 and to 7.155 cents per litre on 1 July 1983. The proceeds of the surcharge were paid into the Australian Bicentennial Road Trust Fund to be used for grants to the States for road construction.(8)

In its first budget on 22 August 1983, the newly elected Hawke Government increased petrol and diesel excise by a discretionary 1.5 cents per litre and simultaneously applied its first six-monthly indexation adjustment (a 4.3 per cent increase). The combined effect was to set the level of petrol and diesel excise at 9.027 cents per litre as from Budget night.

Between August 1983 and February 1986, the increases in petrol and diesel excise rates related only to indexation adjustments. As mentioned above, however, the period from March 1986 to December 1987 was characterised by a rapid increase in excise collections and considerable fluctuations in excise rates, in response to the link between refined petroleum products excise and crude oil levy collections. From 1988 until August 1993, the increases in the excise rates were again only due to indexation(9).

In the 17 August 1993 budget, the Government announced that it was imposing an immediate 3 cents per litre increase on all petroleum products except aviation gasoline and aviation turbine fuel. This raised the excise on petrol and diesel from 26.573 cents per litre to 29.573 cents per litre. The Government further announced that, in addition to the normal indexation adjustments, an additional 1 cent per litre would be added to the excise on most refined petroleum products in each of February and August 1994. In subsequent negotiations with the Western Australian Green Senators and Senator Harradine, however, it was agreed that these latter two adjustments would only apply to petrol and diesel fuel.

By August 1994, therefore, excise on unleaded petrol and diesel had increased by 5 cents per litre plus the indexation adjustment, compared with the rates obtaining immediately prior to budget night. However, in order to curtail the use of leaded petrol, an additional 1 cent per litre was also imposed on this fuel in each of February and August 1994. The overall discretionary increase in leaded petrol was thus seven cents per litre from budget night. The Government had also originally proposed that a further 3 cents per litre would be imposed on leaded fuel in February 1995, which would have made the discretionary increase 10 cents and created a 5 cent differential between the price of leaded and unleaded petrol. This measure was, however, abandoned following post-budget negotiations between the Government and the Australian Democrats.

Since August 1994, increases in petrol and diesel excise have simply reflected the six-monthly indexation process.

2.2 The Diesel Fuel Rebate Scheme

As stated earlier, excise was imposed on diesel fuel in 1957 as a contribution towards Commonwealth expenditure on roads. As a result, the excise was imposed only on diesel fuel used 'for the purposes of propelling a road vehicle on a public road'. Any user who could demonstrate that diesel fuel purchases were not being used for this purpose was eligible to receive a certificate of exemption, which enabled that consumer to purchase diesel fuel free of excise. These arrangements applied from 1957 until 1982.

In 1982, the Fraser Government was concerned by what it saw as 'rorting' of the certificate of exemption scheme. In that year, the Diesel Fuel Taxes Amendment Act 1982 was passed. This did two things. Firstly, the certificate of exemption scheme was abolished. Instead, all users of diesel fuel are now required to pay the full excise, with certain exempt users having the duty they have paid either wholly or partially rebated to them. Secondly, whereas all off-road users of diesel fuel had been exempt, under the 1982 legislation only primary producers (those in agriculture, forestry and fishing), miners (including the beneficiation, i.e. processing, of ore) and users of diesel for heating, lighting, hot water, air-conditioning and cooking for domestic purposes or in hospitals, nursing and old-aged persons homes were exempted from duty.

As a result of the 1982 legislation, a large number of users who previously had been exempt are no longer exempt. These include government railways, coastal shipping, manufacturers, tourist resort operators, cruise operators and so forth.(10)

Up until the first Hawke Government Budget (August 1983), the rebate for the specified exempt users was equal to the excise paid. Just prior to that Budget, for example, both the excise rate and the rebate rate were 7.155 cents per litre. In the August 1983 Budget, several changes were announced to petrol and diesel excise. Firstly, it was announced that excise would be indexed twice yearly to movements in the Consumer Price Index, beginning on Budget night. Secondly, a small discretionary increase in excise rates was also imposed. The upshot of these changes was that the excise on petrol and diesel rose to 9.027 cents per litre on Budget night. However, the rebate was kept at 7.155 cents per litre. Hence even the previously exempted users of diesel fuel began to pay a small amount of excise (the gap between the excise rate and rebate being 1.872 cents per litre).

Over the next two years, excise rates continued to be indexed, while the rebate remained the same. By early 1986, the gap had thus risen to 2.388 cents per litre. After a noisy protest by farmers outside Parliament House, the Government agreed that from February 1986, the rebate arrangements would be changed. Under these changed arrangements, primary producers had the 'gap' removed and the rebate began to be indexed along with the excise rates. Thus today, primary producers receive a total rebate of duty paid. Miners receive whatever rebate is required to ensure that they continue to pay only 2.388 cents per litre. They have thus paid this amount ever since February 1986.

For domestic users and hospitals, nursing and old-aged persons' homes, rebate indexation continued from the old rate of 7.155 cents per litre. Given that the same indexation factor was applied to the higher excise rate, the gap between the two has steadily grown. The gap has also reflected various discretionary changes to excise rates between 1986 and the present. Just prior to the 1995 Budget, this gap was 7.764 cents per litre.

In the 1995 Budget, it was announced that domestic users (apart from domestic diesel use by primary producers and miners) would no longer receive any rebate.(11) The rate of duty payable by such users therefore jumped from 7.764 cents per litre to the standard rate of 32.537 cents per litre. It must be noted that this decision was in accordance with recommendations in a recent Report of the Industry Commission on petroleum products(12), which observed that it appeared that the Government had originally intended the residential category to cover remote households which relied on diesel to generate electricity for light, heat and cooking.

The Commission argued that many domestic users would have access to 'town' electricity, leading it to conclude that it would be less costly for the Government to subsidise the remote households directly. However, not all domestic users have been excluded from the rebate. The definition of 'residential' has been narrowed (in the Customs and Excise Legislation Amendment Act 1995) to premises situated on an agricultural property where a core agricultural activity is carried on, or premises where the residents carry on eligible mining operations. Such residential users now attract the rate of rebate applying to their relevant industry sector.

Under the same legislative package, eligible activities in the primary production and mining sectors were also redefined so as to prevent the rebate being paid for 'marginal' activities for which the rebate was never really intended (e.g. the use of diesel in the maintenance of city parks, bowling greens, or other 'amenity horticulture'(13)). The particular focus of the Customs and Excise Legislation Amendment Act 1995 has been to redefine 'agriculture' and 'mining operations' and to remove the 'sweeper clauses' employed in their definitions in the previous legislation. The sweeper clauses have been the source of most of the litigation in the life of the scheme through their inclusion of activities 'connected with' agriculture and mining operations for eligibility of the rebate. Despite these changes, payments of diesel fuel rebate are still quite significant. It is estimated that in 1995-96, $705.3 million will be paid as a rebate to the mining sector while $551.2 million will be paid to primary producers.

Table 6 shows the effective diesel fuel excise rates paid by the various categories of users, reflecting the diesel fuel rebate arrangements.

2.2.1. Marine Diesel Rebate Scheme

While a number of industries derive some relief from diesel fuel excise through the operation of the diesel fuel rebate scheme, some relief is also provided to the coastal shipping industry through another avenue. In 1989, the government announced that, as part of its shipping reform program, a rebate of diesel fuel excise would be provided to ships of Australia's coastal trading fleet as from 1 July 1992. The rebate is restricted to major trading ships (as defined in the Ships (Capital Grants) Act 1987) and does not include such vessels as offshore oil industry vessels, passenger vessels, tugboats and other craft used primarily in harbours, and pleasure craft.

The rebate is set at 5.31 cents per litre. This was the amount of excise which was notionally hypothecated to roads in 1992. Even though the amount currently being hypothecated to roads has fallen to 3.53 cents per litre, the marine diesel rebate has continued to apply at the 1992 level.

2.3 Fuel Oil, Heating Oil and Kerosenes

The first Hawke Budget (August 1983) also imposed excise on fuel oil, heating oil and kerosene (other than aviation kerosene) for the first time. On Budget night, it was announced that these products would be excisable at the same rate as diesel and petrol, that is, 9.027 cents per litre. Within a few days of the Budget, the Government backtracked on this decision in the face of considerable industry opposition. Instead of applying the 9.027 cents per litre, the Government explicitly gave the users of these products the benefit of the diesel fuel rebate (which, it will be remembered, was 7.155 cents per litre) by subtracting this from the initially proposed excise rate. As a result, these products became excisable at the rate of 1.872 cents per litre.

Due to a combination of indexation, the impact of the crude oil price adjustments in the mid-1980s, and the discretionary 3 cents per litre increase in excise in the 1993 Budget, the excise on fuel oil, heating oil and kerosene had risen to 8.512 cents per litre by August 1993. However, the 1993 excise increase (from 5.512 cents per litre to 8.512 cents) was criticised by users since it represented a much higher percentage increase than the 5 cents per litre increase in diesel excise. In the 1994 Budget, excise on fuel oil, heating oil and kerosenes was therefore reduced to 6.586 cents per litre to equate the percentage excise increase for these products with that of diesel. Since that discretionary change, the only increases in fuel oil, heating oil and kerosene excise rates have been those due to indexation.

Fuel oil consists of many grades, ranging from heavy fuel oil (such as that used in ships' engines), to light fuel oil which is only slightly heavier than diesel. It is technically feasible to convert equipment requiring diesel fuel to use light fuel oil and in those industries which have not qualified for any diesel fuel rebate, the incentive has been very great to do so (e.g. at February 1995 light fuel oil excise was only 6.751 cents per litre compared with 32.537 cents per litre for diesel). In recent years, V/Line and Australian National have invested in technology which has enabled them to switch from diesel to light fuel oil. More recently, Westrail and the NSW State Rail Authority have done likewise and Queensland Rail had begun the process of conversion. Industrial users of diesel-powered electricity generators had also begun to convert and there is some evidence that the same had occurred with coastal shipping (which uses a significant amount of diesel fuel in their auxiliary motors).

In the 1995 Budget, the Commonwealth announced that, from 1 July 1995, the excise on light fuel oil would be raised to equal the diesel fuel excise rate in order to 'address the tax-driven substitution of 'light' fuel oil for diesel which is taking place at some cost to economic efficiency and the environment'.(14) This change has been effected by redefining diesel fuel so as to include light fuel oil.

2.4 Aviation Turbine Fuel (AVTUR) and Aviation Gasoline (AVGAS)

Prior to March 1956, aviation gasoline was excisable at the same rate as motor spirit. However, when announcing an increase in motor spirit excise at that time, the Government agreed to maintain aviation gasoline excise at its existing rate. The nexus between AVGAS and motor spirit excise thus ceased to exist from that date.

Aviation turbine kerosene was free of any duty until September 1957, when duty was imposed. It is significant that excise was levied on AVTUR in the same Customs Tariff Proposal which also imposed excise on diesel for the first time, since similar arguments were offered in each case. The Government noted that already, the users of AVGAS were making a contribution towards the cost of aviation facilities and argued that the growing number of commercial operators using AVTUR should make a reasonable contribution to the heavy costs of providing airport and air route facilities.

Until recently, there had been no formal hypothecation of aviation fuel excise collections for the provision of aviation facilities. Certainly, various Airlines Agreements (between the Commonwealth, Ansett and TAA) included clauses which set limits on the rate of growth of aviation fuel excise rates and which explicitly noted that revenue from aviation fuel excise would be regarded as a cost recovery contribution. Prior to the formation of the Federal Airports Authority (FAC) and the Civil Aviation Authority (CAA) in 1988, aviation fuel taxes and air navigation charges were the principle sources of aeronautical revenues which the Government used to meet the notional cost recovery targets it set for the aviation sector. In a submission to the Bosch Committee on Aviation Cost Recovery in 1984, the Department of Aviation advised that 'fuel excise collections had been taken into account informally since 1961 in setting the cost recovery levels the Government would seek through air navigation charges'.(15)

However, as from 1 July 1987, the air navigation charges applying to AVGAS aircraft (which took the form of an annual registration fee unrelated to aircraft use) were abolished and replaced by a 3.9 cents per litre surcharge on AVGAS excise. On 1 January 1988, a further 0.5 cent per litre excise was added to AVGAS excise to meet the cost of terminal navigation services at Coolangatta, Essendon and Launceston airports.

Since 1988, the charging mechanisms of the FAC and the CAA have had a significant impact on the levying of excise on aviation fuels. Both of these organisations were required to operate on a commercial basis and to devise a set of appropriate cost recovery charges, although the Government did offer to continue funding the safety regulation and search and rescue activities of the CAA. For its part, the FAC has developed a schedule of aeronautical user charges which are centred around the imposition of landing charges at airports other than general aviation airports and the introduction of an airport usage fee, called the general aviation infrastructure tariff (GAIT charge), at general aviation airports.(16) The CAA also has developed a schedule of aeronautical fees, including en-route navigation charges, terminal navigation charges and rescue and firefighting charges.

With the advent of these commercial charges by the CAA and the FAC, the Commonwealth abolished its excise on AVTUR on 1 July 1988. However, it was obvious that practical difficulties would prevent the effective imposition of aeronautical charges on AVGAS aircraft. Since such aircraft often did not file flight plans, the en-route charges levied by the CAA, for example, could not really be applied. As a result, the Commonwealth agreed to pay virtually all of its annual AVGAS excise receipts to the CAA in lieu of en-route charge collections from such aircraft (and in lieu of terminal navigation and rescue and firefighting charges at non-primary airports).

Throughout the 1990s, there have been a number of discretionary changes to AVGAS and AVTUR excise rates. These have stemmed from three main causes. Firstly, given the strong link between AVGAS excise collections and the cost recovery policies of the CAA for the general aviation sector, AVGAS excise rates have frequently changed in response to the CAA's commercial activities. Secondly, the Commonwealth had been recovering, through the AVGAS excise, some of the costs associated with the operation of its Aerodrome Local Ownership Plan, (ALOP) under which the Commonwealth provided development and maintenance assistance to local authorities which had taken over aerodromes previously owned by the Commonwealth. With the phasing out of this scheme in the early 1990s, AVGAS excise rates were reduced.

Thirdly, as mentioned earlier, the Commonwealth had pledged, when establishing the CAA, that it would continue to fund the cost of safety regulation and search and rescue. In the 199091 Budget, the Commonwealth announced that it would phase-in full cost recovery for aviation safety standard setting and enforcement services. It would, however, continue to bear the cost of search and rescue activities. The CAA consulted with industry in order to determine an appropriate cost recovery system. As part of the process of increasing the aviation industry's contribution to the cost of safety regulation, there have been a number of discretionary increases in both AVTUR and AVGAS excise rates.

These three mechanisms have all played a part in determining the current levels of AVGAS and AVTUR excise rates. On 1 July 1991, AVGAS excise was reduced by 0.321 cents per litre in association with the withdrawal of rescue and firefighting services from capital city secondary airports. On May 7 1992, AVGAS excise was reduced by 1 cent per litre as part of the process of phasing out the cost of the ALOP scheme. A further 1 cent per litre ALOP-related reduction occurred on 19 August 1992, in conjunction with a 0.1 cent per litre reduction on the same date due to reduced costs of firefighting services. On 1 July 1993 another reduction of 1.013 cents per litre represented the final step in passing on the cost savings from the abolition of the ALOP. On the same date, a further reduction of 2 cents per litre was also made to compensate for new CAA charging arrangements for firefighting and meteorological services.

On 1 September 1993, recovery of safety regulation costs was initiated by reimposing AVTUR excise at the rate of 0.264 cents per litre, as well as by increasing AVGAS excise by the same amount. An increased industry contribution towards such activities was also pursued through the imposition of an international airline charge. A further increase in both AVGAS and AVTUR excise rates of 1.194 cents per litre took effect on 1 July 1994, while 0.883 cents per litre was added to both rates on 1 July 1995. These increases again represented greater industry contributions towards the cost of providing safety regulation services.

It might be noted that the 1 July 1994 increase in safety cost recovery through AVGAS excise was more than offset, on the same date, by a 7.521 cents per litre reduction in the AVGAS excise rate due to the introduction of marginal cost pricing for the provision of CAA services to the general aviation sector. However, the increase in AVGAS excise on 1 July 1995 for safety cost recovery was augmented by a concurrent increase in airways cost recovery of 0.964 cents per litre. This combined increase in AVGAS excise of 1.847 cents per litre was disallowed in the Senate. Instead of refunding the excise which had been paid, the Government decided to reduce the AVGAS excise rate as from 28 November 1985 by 1.536 cents per litre.

In 1995, the CAA was disbanded and was replaced by two new organisations - Airservices Australia (AA), which has responsibility for the provision of air traffic services, air navigation facilities, rescue and firefighting services and search and rescue, and the Civil Aviation Safety Authority (CASA), which is responsible for air safety regulation. Between them, these two authorities receive the entire aviation fuel excise collected by the Commonwealth. All AVTUR excise is paid to CASA and of the AVGAS excise rate, which is currently 18.478 cents per litre, 16.051 cents per litre is paid to AA while 2.427 cents per litre is paid to CASA.

3. Alcoholic Beverages

Excise on alcohol has been a traditional source of Commonwealth revenue since Federation. Excise is currently applied to beer, potable spirits and liqueurs.(17) Prior to 1978, a large range of different excise rates applied to the various alcoholic beverages, but in the August 1978 Budget, the rate structure was rationalised, with one rate for beers, another for most common spirits and liqueurs and a third rate for spirits and liqueurs not elsewhere included. In the 1979 Budget, it was decided that the excise on brandy, the main spirit characterised by a significant amount of local production, would be reduced. Brandy has been treated on this more favourable basis since that time.

Since 1983, excise on all potable spirits and liqueurs has simply increased in line with the indexation provisions. There have been no discretionary changes in respect of these products. There have, however, been quite significant changes in the way in which beer has been taxed.

Until the 1984 Budget, beer excise was simply imposed per litre of beverage, regardless of alcohol content.(18) However, in order to encourage greater consumption of low alcohol beers for health and road safety reasons, the 1984 Budget drew a distinction between low alcohol and full strength beers for excise purposes. Low alcohol beer was defined as any beer having an alcohol content of between 1.15 and 3.8 per cent by volume. Full strength beer was defined as any beer with an alcohol content exceeding 3.8 per cent. While full strength beer continued to attract the existing rate of excise (66 cents per litre), the excise on low alcohol beer was reduced to 58 cents per litre.

The method of imposing excise on beer was again changed in the 1988 Budget. Instead of having two categories of beer, it was decided that the excise would be levied on the basis of the actual alcohol content of the beer. Thus, excise was imposed in terms of dollars per litre of alcohol in excess of 1.15 per cent alcohol by volume. It might be noted that this formula has the effect of more than proportionately increasing the excise payable on beer as its alcohol content increases. This effect can be clearly seen from Table 2 which, in addition to showing the excise rate imposed on beer, also gives examples of the impact of this excise formula on beers of different strengths.(19)

Not only was the method of imposing beer excise changed in 1988, but the level of excise on all beer was reduced significantly. The excise on full strength beer, for example having an alcohol content of 4.9 per cent, fell from 88.4 cents per litre to 43.9 cents per litre. Low alcohol beer excise fell even more, from 77.7 cents per litre to only 18.1 cents per litre for a 2.7 per cent alcohol beer, for example. The stated reason for reducing excise by such a large amount was to encourage the consumption of low alcohol beverages, such as beer, as against higher alcohol beverages such as spirits. The 'favoured' excise position of beer can be seen from the fact that the current excise rate on beer is only $15.66 per litre of alcohol (in excess of 1.15 per cent), while the rate applying to most spirits is $36.44 per litre of alcohol.

However, it should be noted that while the 1988 Budget reduced the excise on beer, the same Budget also imposed a 20 per cent wholesale sales tax on beer, thus bringing its sales tax treatment into line with wine and spirits.(20) Currently, sales tax on beer and spirits is 22 per cent, while the sales tax on wine (which is not subject to excise) is 26 per cent.(21) In terms of overall federal taxation per litre of alcohol, wine of average quality(22) is still the most lightly taxed alcoholic beverage, followed by beer and spirits.

Table 2 in the Appendix shows excise rates on major alcoholic beverages since 1965.

4. Tobacco Products

Along with alcohol, tobacco products have also been a traditional source of excise revenue since Federation. In recent years, however, excise rates on tobacco have been raised significantly in an attempt to discourage smoking, which is seen as a major health hazard which imposes significant costs on the public health system. It might be noted from Table 4, that any decline in tobacco usage has been less than the proportional increase in excise rates, with the result that revenue from tobacco excise is still increasing.

Up to 1983, there were various discretionary increases in tobacco excise rates. From August 1983, such excise rates were, of course, subject to indexation. Furthermore, since 1983, there has also been a rationalisation of the excise rates applying to various tobacco products.(23) Prior to 1983, manufactured cigarettes attracted a higher rate of excise than manufactured cigars, with manufactured tobacco (pipe tobacco, roll-your-own tobacco, etc) being taxed at only around half of the rate of cigarettes. In the 1983 Budget, it was announced that the excise rate on cigars would be raised to equal that of cigarettes, while the excise rate on manufactured tobacco was raised by $5 per kilogram. A further $5 per kilogram was added to manufactured tobacco excise in each of the 1984 and 1985 Budgets. The 1986 Budget added a further discretionary $1.90 to the manufactured tobacco excise rate, this being the last step in the process of equating the excise rates for all major tobacco products.

A first attempt to 'get tough' on tobacco use occurred in the 1992 Budget, when a discretionary $5 per kilogram was added to the excise rate for all tobacco products. It was stated that 'this measure will complement the range of health policies the Government already has in place which are aimed at discouraging smoking and hence reducing the health care and other costs to the community associated with smoking'.(24)

The 1993 Budget, which sought to impose significant increases in excise rates on refined petroleum products, also announced that excise rates on tobacco products would be increased by 3 per cent on Budget night with a further four increases in excise (each of 3 per cent) occurring at the time of indexation, that is in February and August 1994 and February and August 1995. However, as discussed in the section of this paper dealing with fuel excise, several of the fuel excise hikes proposed in the 1993 Budget were opposed by the Democrats, the Greens and Senator Harradine. In order to recoup some of the fuel excise revenue forgone, the Democrats proposed to the Government that each of the remaining four increases in tobacco excise should be 5 per cent, instead of the 3 per cent proposed by the Government. The Government acceded to this request.

The timetable for imposing these increases was, however, not entirely adhered to. The 1995 Budget imposed a discretionary 10 per cent increase in tobacco excise rates (equal to $7.18 per kilogram) effective from Budget night (9 May 1995). Subsumed within this 10 per cent increase was the final 5 per cent increase which was to have been imposed in August 1995.

Table 3 in the Appendix shows excise rates on major manufactured tobacco products since 1965.

5. Equity and Efficiency

Although excises represent an important revenue source to the Commonwealth Government, they have frequently been criticised on the grounds of equity and economic efficiency. Excises are quite a regressive form of taxation, in that they have a proportionately greater impact on lower income earners than higher income earners. Also, where excise is imposed upon products which are used as inputs to other industries, especially in the case of petroleum products, it is likely that the different tax treatment of the various fuels distorts the pattern of production, hence reducing economic efficiency.

Table 7 in the Appendix shows the degree of regressivity of excises. Based on the Australian Bureau of Statistics Household Expenditure Survey for 1993-94, the Table shows the relative significance of excisable products in the consumption patterns of households of different income levels.(25) In the case of all products (petrol, excisable alcohol and tobacco), the relative proportion of income spent on such products declines as income increases. Thus the excise paid on such products falls relatively more heavily on households at lower income levels. As the Table shows, measured in terms of the relative proportions of income spent, households in the lowest twenty per cent income bracket are 3.8 times harder hit by excises than households in the top twenty per cent bracket. The impact is greater for tobacco products, where the lowest income households are 7.5 times harder hit than high income households.

The regressive nature of excise has been a cause for concern in policy making. For example, one of the reasons why the Senate disallowed the final 3 cents per litre imposition of excise on leaded petrol was due to concerns that such a tax might represent a heavy burden upon lower income households which could not afford to purchase a later model, unleaded petrol vehicle. Another problem identified during Parliamentary debate on this matter was the inequity of imposing large fuel tax increases on people in country areas, when lead pollution would have its greatest impact in the cities.

Concerns have also been expressed about the impact of fuel excise on economic efficiency.(26) Firstly, there is a wide variation in the taxation of fuel used by different industries as well as between different types of fuel. As has been shown above, different industries face different liability for diesel fuel excise, with primary industry being exempt, miners paying 2.388 cents per litre and all other industries paying the full rate. Industries paying the full rate of diesel excise are currently paying 34.183 cents per litre, other industries using fuel oil are only paying 7.093 cents per litre, while those industries using liquefied petroleum gas pay no excise at all.

Secondly, economic theory indicates that the imposition of a pure tax on inputs (such as fuel) into other industries is likely to lead to a misallocation of resources within the economy. A fuel tax is likely to increase the costs of those industries using fuel more intensively, causing resources to move away from such industries and into other avenues of production. The impact of the tax on the relative prices charged by such industries will also distort consumer decisions. These distortions fail to meet one of the desirable attributes of any taxation system, that of 'neutrality', which requires a well designed tax system to have the least possible impact on consumption and production decisions.

A number of Reports to the Government from such bodies as the Industries Assistance Commission, the Inter-State Commission and the Industry Commission have expressed concern over the taxation of intermediate inputs and have urged the Government, among other things, to abolish excise on fuel used by railways and coastal shipping and to examine the whole question of intermediate input taxation in general.(27)

It should be noted, however, that these economic efficiency concerns relate only to the imposition of 'pure' taxes on intermediate inputs. There is a valid economic argument for imposing some appropriately designed impost upon industries which generate unpriced net social costs, such as pollution, or upon those industries where the impost is the only feasible method of applying a user charge, such as in the road transport industry or the operation of AVGAS aircraft. Such an impost could well take the form of an excise.

However, even in these instances, it may be difficult to devise a truly appropriate tax. Difficulties arise in attempting to value pollution and other social costs. There is also some evidence that excise imposed as a user charge may not have been efficiently applied. The National Road Transport Commission, for example, has assessed the road track cost for heavy vehicles to be 18 cents per litre, although no assessment was made of a charge to offset social costs.(28) The road freight industry is, however, currently paying 34.183 cents per litre in excise. It has also been argued that the users of AVGAS aircraft, especially in uncontrolled airspace, may be paying excise for services they are not using. It was this concern which led to the Senate disallowing the last discretionary increase in AVGAS excise.

Endnotes

  1. Section 90 reads, in part:

    'On the imposition of uniform duties of customs the power of the Parliament to impose duties of customs and excise, and to grant bounties on the production or export of goods, shall become exclusive. On the imposition of uniform duties of customs, all laws of the several States imposing duties of customs or of excise, or offering bounties on the production or export of goods, shall cease to have effect...'

  2. In 1942, as a war time emergency measure, the Commonwealth obtained the consent of the States for the Commonwealth to become the sole imposer of income tax for the duration of the war plus one year. The States, in turn, were to receive tax reimbursement grants from the Commonwealth. However, in 1946, the Commonwealth announced that these arrangements would continue to apply indefinitely.
  3. The States do impose business franchise fees on petroleum, alcoholic and tobacco products. These 'taxes' are portrayed as licence fees for the right to purvey such products and are carefully constructed so as to make it appear that the tax is not related to the level of current sales. This is usually done by imposing the tax on sales in some specified, previous period. Note that the High Court interpretation would not prevent the States from imposing any tax on services, although practical problems may arise if such services were to include some goods component.
  4. There have been a number of occasions when the indexation has not been carried out due to insignificant or negative movements in the CPI over the relevant six-monthly indexation period. In these instances, the full year's indexation has been carried over to the next indexation period. In addition, in February 1988, excises were indexed by an arbitrary 2.5 per cent, following upon a pledge by the Prime Minister that during 1987-88, excise rate indexation would be limited to around 6 per cent. If full indexation had applied, excises would have risen by 3.4 per cent in February 1988.
  5. As from 1 July 1990, the crude oil levy began to be replaced by a true resource rent tax. Currently only a small amount of crude oil and LPG excise is collected from fields in the North West Shelf production licence areas not subject to the petroleum resource rent tax. This paper will not address the details of crude oil excise.
  6. Hypothecation is the process whereby all or part of a tax is 'earmarked' for a specified form of public expenditure.
  7. See the Second Reading speech for the Commonwealth Aid Roads Bill 1959.
  8. For a description of roads programs operating in Australia since 1980, see Denis James, Commonwealth Road Funding Since 1980. Background Paper No. 35. Parliamentary Research Service. December 1993.
  9. It should be noted that, from 1 July 1985 until the current time, a portion of the excise collections on petrol and diesel have been hypothecated to roads under the Australian Land Transport Program and the Australian Centennial Roads Development program (which was renamed the Australian Land Transport Development program in 1990). These hypothecated funds were raised simply as a designated portion of the existing excise rates, rather than being a surcharge, and hence did not influence the setting of those excise rates. Currently, the 'hypothecated' rate of excise is calculated and declared retrospectively once the Commonwealth has determined the level of road funding it is willing to provide. The term 'hypothecation' is thus currently somewhat of a misnomer.
  10. It might be noted that where transport, other than on public roads, is involved in moving ore from a mining site to a place of beneficiation, such transport is eligible for a rebate of diesel excise at the same rate as any other mining operation. As such, several private railways and even some coastal shipping involved in this form of transport receive the rebate.
  11. It was also announced on budget night, however, that indigenous communities using diesel for domestic purposes would be compensated, through other means, for the removal of the rebate.
  12. Industry Commission. Petroleum Products. Report No. 40. 5 July 1994. p. 281
  13. According to the Financial Review, 8 June 1995, p. 3, 'The claimed eligibility of parks and gardens has particularly angered the Government, especially a letter from the NSW Golf Association inviting golf clubs to seek the rebate through accountancy firm Ernst & Young on a 25 percent success fee basis. That alone could cost $40 million, according to government estimates.'
  14. Budget Speech. May 1995. p. 12.
  15. Aviation Cost Recovery: Report of the Independent Inquiry. AGPS. Canberra. November 1984. p. 176
  16. The general aviation sector includes charter, flying training, agricultural, business, private and other aerial work activities. While a growing number of general aviation aircraft are turbo-prop and use aviation turbine kerosene, a large number of general aviation aircraft have piston engines and use aviation gasoline.
  17. 'Potable' spirits are those spirits which are fit for human consumption.
  18. Since 1973, beer has been defined as any beverage brewed from a mash and containing hops or other bitters and having an alcohol content in excess of 1.15 per cent by volume.
  19. A formula can be used to calculate the effective excise paid, in cents per litre, of a litre of beer of known alcohol content. Using the current gazetted excise rate of $15.66 per litre of alcohol in excess of 1.15 per cent, excise per litre of beer having an alcohol content of 4.9 per cent would be:

    (.049 - .0115) x $15.66 = 58.725 cents per litre of beverage

  20. It should be noted that sales tax is imposed on the value of a commodity including the cost of excise. It is thus a tax on a tax. The States also impose business franchise taxes on alcohol, tobacco and (with the exception of Queensland) fuel. These taxes are imposed on top of any federal taxes included in the wholesale price of the commodity concerned.
  21. In the 1993-94 Budget, the Government had proposed that alcoholic wine and cider should be made subject to a 31 per cent wholesale sales tax as from Budget night, increasing to 32 per cent as from 1 July 1995. This move was designed to remove the taxation advantage these products might enjoy over beer and spirits, which are subject to both excise duty and sales tax. This proposal was blocked in Parliament by the Opposition and minority parties and instead, sales tax on wine was reduced to 22 per cent as from 20 October 1993. It was further agreed that sales tax on wine would rise to 24 per cent on 1 July 1994 and to 26 per cent on 1 July 1995. In the meantime, the Government referred the issue to a Committee of Inquiry into the Winegrape and Wine Industry for review. Given that the members of the Review Committee could not agree on appropriate taxation levels, the Government, on 2 November 1995, announced that it would maintain the rate of sales tax on wine at 26 per cent.

    In the same announcement, the Government also signalled its intention to change the taxation treatment of cider, non-grape fruit wines and certain 'designer drinks'. Currently such drinks are taxed at the same rate as wine, but since they appear to compete with beer, the Government proposed that, from 1 July 1996, such drinks should be taxed like beer, that is, at the beer rate of excise and sales tax. However, legislation to this effect had not been introduced by the time Parliament was dissolved for the March 1996 election.

  22. Since sales tax is levied on the wholesale price of a product, the more expensive the product, the higher the tax. Premium quality wines would thus be subject to higher tax than wines of average quality.
  23. The 1983 Budget also removed the excise from such other commodities as matches, cigarette papers and tubes, playing cards, amylic alcohol and fusel oil.
  24. Budget Paper No. 1, 1992-93. p. 4.14
  25. ABS. Household Expenditure Survey - Australia. 1993-94. Cat. No 6535.0
  26. This issue has been canvassed in depth in James, D. Revenue Before Rhetoric: A Critique of Fuel Taxation in Australia. Parliamentary Research Service. Current Issues Brief No. 50. June 1995.
  27. See, for example, Industries Assistance Commission. Certain Petroleum Products - Taxation Measures. Report No. 397, November 1986; Inter-State Commission. Road Use Charges and Vehicle Registration: A National Scheme. March 1990; Industry Commission. Rail Transport. Report No. 13. August 1991; and Industry Commission. Petroleum Products. Report No. 40. July 1994.
  28. National Road Transport Commission. Heavy Vehicle Charges Determination. June 1992.

Appendix

In the following tables:

.. Not excisable.

n.c. No change to excise rate.

n.s.i. Not separately identified.

< Less than...

> Greater than...

Sources for the following tables:

Commonwealth Budget Papers; Commonwealth Gazettes; Commonwealth Acts; and Hansard.

Table 1: Excise Rates on Major Refined Petroleum Products

 Table 1:  Excise rates on major refined petroleum products - Cents per litre
  ----------------------------------------------------------------------------

Date                   Petrol           Diesel    Fuel oil    AVTUR*     AVGAS**
                                               Heating oil
                                                 Kerosenes
--------------------------------------------------------------------------------
15 March '56            2.018               ..         ..         ..       1.558
4 September '57         2.108            2.203         ..      1.191        n.c.
16 August '61           2.154             n.c.         ..       n.c.        n.c.
18 August '65           2.706            2.750         ..      1.738       2.104
14 February '66          n.c.             n.c.         ..      n.c.        2.105
19 August '70           3.366            3.410         ..      2.398       2.765
18 August '71           3.806            3.850         ..      n.c.        3.205
1 July '72               n.c.             n.c.         ..      2.840        n.c.
21 August '73           4.905            4.905         ..      3.940       4.305
16 August '77           5.155            5.155         ..      4.190       4.555
17 August '82           6.155            6.155         ..       n.c.        n.c.
1 July '83              7.155            7.155         ..      6.190       6.555
23 August '83           9.027            9.027      1.872      6.978       7.358
2 February '84          9.397            9.397      1.949      7.264       7.660
2 February '85          9.641            9.641      2.000      7.709       8.116
2 August '85           10.007           10.007      2.076      8.002       8.424
4 February '86         10.437           10.437      2.165      8.346       8.786
15 March '86           15.766           15.766      3.270     12.608      13.272
17 April '86           18.388           18.388      3.814     14.705      15.479
17 May '86             19.200           19.200      3.982     15.354      16.163
14 June '86            18.822           18.822      3.904     15.052      15.845
18 July '86            19.240           19.240      3.991     15.386      16.197
1 August '86           20.010           20.010      4.151     16.001      16.845
16 August '86          20.884           20.884      4.332     16.700      17.581
19 August '86          23.884           23.884      4.954     19.099      20.107
13 September '86       20.185           20.185      4.187     16.141      16.993
16 October '86         19.706           19.706      4.088     15.758      16.589
17 January '87         19.655           19.655      4.077     15.717      16.546
4 February '87         20.756           20.756      4.305     16.597      17.473
14 February '87        18.720           18.720      3.883     14.969      15.759
14 March '87           19.150           19.150      3.972     15.313      16.121
16 May '87             19.840           19.840      4.115     15.865      16.702
1 July '87               n.c.             n.c.       n.c.       n.c.      20.602
18 July '87            19.808           19.808      4.108     15.839      20.569
15 August '87          20.097           20.097      4.168     16.070      20.870
17 October '87         20.830           20.830      4.320     16.656      21.631
14 December '87        20.295           20.295      4.209     16.228      21.076
1 January '88            n.c.             n.c.      n.c.        n.c.      21.576
3 February '88         20.802           20.802      4.314     16.634      22.115
1 July '88               n.c.           n.c.         n.c.      0.000        n.c.
1 August '88           21.530           21.530      4.465         ..      22.889
5 February '89         22.391           22.391      4.644         ..      23.805
1 August '89           23.152           23.152      4.802         ..      24.614
5 February '90         24.124           24.124      5.004         ..      25.648
6 August '90           24.920           24.920      5.169         ..      26.494
18 February '91        25.767           25.767      5.345         ..      27.395
1 July '91               n.c.             n.c.       n.c.         ..      27.074
3 February '92         26.154           26.154      5.425         ..      27.480
7 May '92                n.c.             n.c.       n.c.         ..      26.480
19 August '92            n.c.             n.c.       n.c.         ..      25.380
2 February '93         26.232           26.232      5.441         ..      25.456
1 July '93               n.c.             n.c.       n.c.         ..      22.443
2 August '93           26.537           26.537      5.512         ..      22.735
17 August '93          29.537           29.537      8.512         ..        n.c.
1 September '93          n.c.             n.c.       n.c.      0.264      22.999

                Unleaded     Leaded
                -------------------
2 February '94     30.75      31.75     30.750      8.563      0.266      23.137
11 May '94          n.c.       n.c.       n.c.      6.586       n.c.        n.c.
1 July '94          n.c.       n.c.       n.c.       n.c.      1.460      16.810
1 August '94      32.088     34.099     32.088      6.658      1.476      16.995
1 February '95    32.537     34.576     32.537      6.751      1.497      17.233
1 July '95          n.c.       n.c.       n.c.       n.c.      2.380      19.080
1 August '95      33.513     35.613     33.513      6.954      2.451      19.652
28 November '95     n.c.       n.c.       n.c.       n.c.       n.c.      18.116
1 February '96    34.183     36.325     34.183      7.093      2.500      18.478
--------------------------------------------------------------------------------

*   AVTUR is aviation turbine kerosene
**  AVGAS is aviation gasoline.

Table 2: Excise Rates on Alcoholic Beverages

 Table 2:  Excise rates on alcoholic beverages
                 ---------------------------------------------

Date                           Beer                Brandy       Fruit
                                                              brandy,                  
                                                                 Rum,
                                                              Whisky,    Spirits
                                                           Prescribed        and
                                                          Spirits and   Liqueurs
                                                             Liqueurs     n.e.i.
                              -----                ------------------------------
                              Cents                     $ per litre of alcohol
                                per
                              litre
---------------------------------------------------------------------------------
18 August '65                25.2778                  3.08     4.27(w)      4.70
                                                             4.35(r&g)
21 August '73                  n.c.                   6.00     6.80(w)      7.23
                                                             6.88(r&g)
23 July '74                    n.c.                   8.55     9.35(w)      9.78
                                                             9.43(r&g)
17 August '74                  n.c.                    8.95       n.c.      n.c.
19 August '75                  39.4                   10.21   10.21(w)     10.64
                                                            10.29(r&g) 
15 August '78                  52.0                   18.75      18.75     19.25
9 November '79                 n.c.                   16.00       n.c.      n.c.
17 August '82                  60.0                    n.c.       n.c.      n.c.
23 August '83                  63.0                   16.69      19.56     20.08
2 February '84                 66.0                   17.37      20.36     20.90

                              -----------------
                               > 3.8%   > 1.15%
                              alcohol       and
                                         < 3.8%
                                        alcohol
                              -----------------
21 August '84                  66.000    58.000       n.c.       n.c.      n.c.
2 February '85                 67.716    59.508       17.82      20.89     21.44
2 August '85                   70.289    61.769       18.50      21.68     22.25
4 February '86                 73.311    64.425       19.30      22.61     23.21
1 August '86                   76.243    67.002       20.07      23.51     24.14
4 February '87                 80.513    70.754       21.19      24.83     25.49
15 August '87                  83.331    73.230       21.93      25.70     26.38
3 February '88                 85.414    75.061       22.48      26.34     27.04
1 August '88                   88.403    77.688       23.27      27.26     27.99
            ------------------------------------
                  Excise:    Example:   Example:
              $ per litre        4.9%       2.9%
               of alcohol     alcohol    alcohol
             in excess of     content    content
            1.15% alcohol   Expressed  Expressed
                by volume    as cents   as cents
                            per litre  per litre
            ------------------------------------
23 August '88       11.70      43.875      18.135       n.c.      n.c.      n.c.
 5 February '89     12.17      45.638      18.864      24.20     28.35     29.11
 1 August '89       12.58      47.175      19.499      25.02     29.31     30.10
 5 February '90     13.11      49.163      20.321      26.07     30.54     31.36
 6 August '90       13.54      50.775      20.987      26.93     31.55     32.39
18 February '91     14.00      52.500      21.700      27.85     32.62     33.49
 3 February '92     14.21      53.288      22.026      28.27     33.11     33.99
 2 February '93     14.25      53.438      22.088      28.35     33.21     34.09
 2 August '93       14.44      54.150      22.382      28.72     33.64     34.53
 2 February '94     14.53      54.488      22.522      28.89     33.84     34.74
 1 August '94       14.69      55.088      22.770      29.21     34.21     35.12
 1 February '95     14.90      55.875      23.095      29.62     34.69     35.61
 1 August '95       15.35      57.563      23.793      30.51     35.73     36.68
 1 February '96     15.66      58.725      24.273      31.12     36.44     37.41
--------------------------------------------------------------------------------

n.c.  No change to existing rate    w  Whisky     r  Rum     g  Gin

Table 3: Excise Rates on Major Tobacco Products

 Table 3:  Excise rates on major tobacco products
        ------------------------------------------------
                          ($ per kilogram of tobacco)

        Date              Cigarettes      Cigars     Tobacco
        ----------------------------------------------------
        18 August '65           9.26        7.39        4.94
        19 August '70          10.36        8.49        5.38
        18 August '71          11.46        9.59        5.93
        21 August '73          14.00       12.00        7.20
        23 July '74            16.10       13.80        8.25
        19 August '75          19.36       16.56        9.88
        15 August '78          24.75       21.12       12.58
        17 August '82          29.70       25.34       15.10
        23 August '83          30.98       30.98       20.10
         2 February '84        32.25       32.25       20.92
        21 August '84           n.c.        n.c.       25.92
         2 February '85        33.09       33.09       26.59
         2 August '85          34.35       34.35       27.60
        20 August '85           n.c.        n.c.       32.60
         4 February '86        35.83       35.83       34.00
         1 August '86          37.26       37.26       35.36
        19 August '86           n.c.        n.c.       37.26
         4 February '87        39.35       39.35       39.35
        15 August '87          40.73       40.73       40.73
         3 February '88        41.75       41.75       41.75
         1 August '88          43.21       43.21       43.21
         5 February '89        44.94       44.94       44.94
         1 August '89          46.47       46.47       46.47
         5 February '90        48.42       48.42       48.42
         6 August '90          50.02       50.02       50.02
        18 February '91        51.72       51.72       51.72
         3 February '92        52.50       52.50       52.50
         2 February '93        57.67       57.67       57.67
         2 August '93          58.42       58.42       58.42
         2 February '94        63.56       63.56       63.56
         1 August '94          67.47       67.47       67.47
         1 February '95        71.84       71.84       71.84
        10 May '95             79.02       79.02       79.02
         1 August '95          81.39       81.39       81.39
         1 February '96        83.02       83.02       83.02
        ----------------------------------------------------

Table 4: Excise Revenue from Major Excisable Products

 Table 4:  Excise revenue from major excisable products
        ------------------------------------------------------
                              ($ million)

------------------------------------------------------------------------
Year             Refined        Beer     Potable     Tobacco       Total
               petroleum                 spirits    products
                products
------------------------------------------------------------------------
1970-71           n.s.i.         382      n.s.i.         272       1,053
1971-72           n.s.i.         398      n.s.i.         307       1,212
1972-73           n.s.i.         420      n.s.i.         328       1,268
1973-74              646         461          45         391       1,543
1974-75              698         480          65         475       1,718
1975-76              740         706          68         549       2,063
1976-77              772         740          71         555       2,138
1977-78              867         765          77         565       2,274
1978-79              910         953         100         659       2,622
1979-80              905         989          99         699       2,692
1980-81              925         991         111         704       2,731
1981-82              970       1,011         121         732       2,834
1982-83            1,364       1,123         114         799       3,400
1983-84            2,137       1,159         118         864       4,278
1984-85            2,387       1,148         133         896       4,564
1985-86            3,044       1,258         135         951       5,388
1986-87            5,142       1,363         144       1,018       7,667
1987-88            5,250       1,487         146       1,105       7,988
1988-89            5,780         910         161       1,151       8,002
1989-90            6,367         797         169       1,270       8,603
1990-91            6,601         866         169       1,322       8,958
1991-92            7,110         829         176       1,312       9,427
1992-93            7,200         804         179       1,370       9,553
1993-94 (Est)      8,578         828         183       1,394      10,983
1994-95 (Est)      9,568         821         188       1,481      12,058
1995-96 (Est)     10,305         875         199       1,636      13,015
------------------------------------------------------------------------

Est     Estimated
n.s.i.  Not separately identified

Table 5: Excise Indexation Factors Applied

 Table 5:  Excise indexation factors applied
        -------------------------------------------
                            (CPI Adjustments)

        Date             Indexation Factor
        ----------------------------------
        23 August '83                1.043
         2 February '84              1.041
         2 February '85              1.026
         2 August '85                1.038
         4 February '86              1.043
         1 August '86                1.040
         4 February '87              1.056
        15 August '87                1.035
         3 February '88*             1.025
         1 August '88                1.035
         5 February '89              1.040
         1 August '89                1.034
         5 February '90              1.042
         6 August '90                1.033
        18 February '91              1.034
         3 February '92              1.015
         2 February '93              1.003
         2 August '93                1.013
         2 February '94              1.006
         1 August '94                1.011
         1 February '95              1.014
         1 August '95                1.030
         1 February '96              1.020
        ----------------------------------

        *  In February 1988, excises were indexed by an arbitrary 2.5 per cent
            following upon a pledge by the Prime Minister that during 1987-88,
            excise rate indexation would be limited to around 6 per cent.

Table 6: Excise Rates Paid by Users of Diesel Fuel, Net of Diesel Fuel Rebate

 Table 6:  Excise rates paid by users of diesel fuel net of diesel fuel rebate
   -----------------------------------------------------------------------------
                                   (Cents per litre)

   Date          Non-Rebatable      Primary       Miners        Other
                         users    producers                 Rebatable
                                                               Users*
   ------------------------------------------------------------------
   17 August '82         6.155            0            0            0
    1 July '83           7.155            0            0            0
   22 August '83         9.027        1.872        1.872        1.872
    2 February '84       9.397        2.242        2.242        2.242
    2 February '85       9.641        2.300        2.300        2.300
    2 August '85        10.007        2.388        2.388        2.388
    4 February '86      10.437            0        2.388        2.490
   15 March '86         15.766            0        2.388        3.761
   17 April '86         18.388            0        2.388        4.386
   17 May '86           19.200            0        2.388        4.580
   14 June '86          18.822            0        2.388        4.490
   18 July '86          19.240            0        2.388        4.590
    1 August '86        20.010            0        2.388        4.774
   16 August '86        20.884            0        2.388        4.983
   19 August '86        23.884            0        2.388        5.699
   13 September '86     20.185            0        2.388        4.816
   16 October '86       19.706            0        2.388        4.702
   17 January '87       19.655            0        2.388        4.690
    4 February '87      20.756            0        2.388        4.953
   14 February '87      18.720            0        2.388        4.467
   14 March '87         19.150            0        2.388        4.570
   16 May '87           19.840            0        2.388        4.735
   18 July '87          19.808            0        2.388        4.727
   15 August '87        20.097            0        2.388        4.796
   17 October '87       20.830            0        2.388        4.971
   14 December '87      20.295            0        2.388        4.843
    3 February '88      20.802            0        2.388        4.964
    1 August '88        21.530            0        2.388        5.138
    5 February '89      22.391            0        2.388        5.343
    1 August '89        23.152            0        2.388        5.525
    5 February '90      24.124            0        2.388        5.757
    6 August '90        24.920            0        2.388        5.947
   18 February '91      25.767            0        2.388        6.149
    3 February '92      26.154            0        2.388        6.241
    2 February '93      26.232            0        2.388        6.260
    2 August '93        26.537            0        2.388        6.341
    2 February '94      30.750            0        2.388        7.338
    1 August '94        32.088            0        2.388        7.657
    1 February '95      32.537            0        2.388        7.764
    1 August '95        33.513            0        2.388        7.997
    1 February '96      34.183            0        2.388        8.157
   ------------------------------------------------------------------

   *  Includes hospitals, nursing homes, aged persons homes and, until 1995,
      residential premises where diesel was used for meeting the domestic
      cooking, lighting, heating and other requirements of residents.

Table 7: Regressivity of Excise

 Table 7:  Regressivity of excise
                          --------------------------------
               ( Average Weekly Income Spent on Excisable Products)


                                          Income Level
                 -------------------------------------------------------------------
                  Lowest       2nd       3rd       4th     Highest   Average   Ratio
                    20 %      20 %      20 %      20 %        20 %           highest
                                                                                  to 
                                                                              lowest
------------------------------------------------------------------------------------
Income:          $151.66   $353.91   $592.28   $909.22   $1,608.77   $723.26
------------------------------------------------------------------------------------

Expenditure:
------------
Petrol            $11.18    $17.63    $24.24    $30.44      $36.06    $23.90
                   7.37%     4.98%     4.09%     3.35%       2.24%     3.30%    3.29
------------------------------------------------------------------------------------

Beer               $4.72     $6.96     $9.87    $11.47      $13.42     $9.29
                   3.11%     1.97%     1.67%     1.26%       0.83%     1.28%    3.73

Spirits            $1.24     $2.22     $3.06     $3.52       $5.63     $3.13
                   0.82%     0.63%     0.52%     0.39%       0.35%     0.43%    2.34

Total alcohol*     $6.27     $9.75    $14.11    $16.61      $21.79    $13.70
                   4.13%     2.75%     2.38%     1.83%       1.35%     1.89%    3.05
------------------------------------------------------------------------------------

Cigarettes         $5.90     $8.61     $9.52     $9.92       $8.63     $8.51
                   3.89%     2.43%     1.61%     1.09%       0.54%     1.18%    7.25

Other tobacco      $0.48     $0.81     $0.77     $0.90       $0.43     $0.68
                   0.32%     0.23%     0.13%     0.10%       0.03%     0.09%   11.84

Total tobacco      $6.38     $9.42    $10.29    $10.82       $9.06     $9.19
                   4.21%     2.66%     1.74%     1.19%       0.56%     1.27%    7.47
+===================================================================================

Total Excisable   $23.83    $36.80    $48.64    $57.87      $66.91    $46.79
                  15.71%    10.40%     8.21%     6.36%       4.16%     6.47%    3.78
------------------------------------------------------------------------------------

*  Includes certain unclassified alcoholic beverages but excludes wine, which is
   not excisable.

Source:  ABS,  Household Expenditure Survey: Australia. 1993-94.   Cat. No. 6535.0

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