Reintroduction of fuel excise indexation

Budget Review 2014–15 Index

Richard Webb

The Government announced that it would reintroduce the biannual indexation of fuel excise to changes in the consumer price index (CPI).[1] Indexation will apply to the general rate of excise (and customs duty) which is now 38.143 cents per litre (cpl). In 2014-15, indexation will add about one cpl to this rate. The main fuels affected will be petrol and diesel.

The additional revenue over the forward estimates is $4.15 billion. This will be offset, in part, by rebates paid under the Fuel Tax Credits Scheme (FTCS).[2] The FTCS provides (fully or in part) rebates of excise paid on fuel used in certain activities including in agriculture and mining.[3] The estimated revenue and FTCS rebates are shown in Table 1.

Table 1: Net revenue from the reintroduction of fuel excise indexation ($ million) 

 
2014–15
2015–16
2016–17
2017–18
Total
Total revenue
280.0
750.0
1270.0
1850.0
4150.0
FTCS rebates
-100.7
-350.0
-550.0
-800.0
1800.7
Net
179.3
400.0
720.0
1050.0
2349.3

Source: Australian Government, Budget measures: budget paper no. 2: 2014-15, 2014, p. 17, accessed 14 May 2014.

Indexation will maintain the real value of the rate. Non-indexation has eroded the tax base; had indexation continued, the rate would now be about 55cpl, that is, 17 cpl higher. Non-indexation may also have had other effects such as encouraging the purchase of relatively fuel-inefficient cars.

Past reviews have recommended the reintroduction of indexation. The Fuel Tax Inquiry recommended:

… the reintroduction of twice yearly fuel excise indexation to preserve the real value of fuel taxation revenue. If fuel taxation is to continue as a source of revenue for government, it should not be eroded by inflation over time.[4]

The review of the tax system, Australia’s Future Tax System (the Henry report) recommended that:

Fuel tax should apply to all fuels used in road transport on the basis of energy content, and be indexed to the CPI.[5]

The non-indexation of fuel excise also contrasts with the indexation of excise on tobacco and alcohol.

In the Budget Speech, the Treasurer stated that the Government: 

… is reintroducing fuel indexation where every dollar raised by the increase will be linked by law to the road-building budget.[6]

Almost $2.2 billion will be available over the forward estimates period for this purpose.[7]



[1].           Australian Government, Budget measures: budget paper no. 2: 2014–15, 2014, p. 17, accessed 14 May 2014.

[2].           Australian Taxation Office, Fuel tax credits for business, October 2013, accessed 14 May 2014.

[3].           The Fuel Tax Credits Scheme is not a subsidy. Neither Treasury nor the Productivity Commission treat it as such. See R Webb, Fuel tax credits: are they a subsidy to fuel use? , FlagPost, Parliamentary Library weblog, 3 May 2012, accessed 14 May 2014.

[4].           Commonwealth of Australia, Fuel Tax inquiry. Overview, March 2002, p. 19, accessed 14 May 2014. 

[5].           Commonwealth of Australia, Australia’s future tax system. Report to the Treasurer. Part 1, December 2009, p. 93, accessed 14 May 2014.

[6].           J Hockey, Appropriation Bill (No. 1) 2014-15, second reading speech, House of Representatives, Debates, pp. 61–66, accessed 14 May 2014.

[7].           Budget measures: budget paper no. 2: 2014–15, op. cit. 

 

For copyright reasons some linked items are only available to Members of Parliament.


© Commonwealth of Australia

In essence, you are free to copy and communicate this work in its current form for all non-commercial purposes, as long as you attribute the work to the author and abide by the other licence terms. The work cannot be adapted or modified in any way. Content from this publication should be attributed in the following way: Author(s), Title of publication, Series Name and No, Publisher, Date.

To the extent that copyright subsists in third party quotes it remains with the original owner and permission may be required to reuse the material.

Inquiries regarding the licence and any use of the publication are welcome to webmanager@aph.gov.au.

This work has been prepared to support the work of the Australian Parliament using information available at the time of production. The views expressed do not reflect an official position of the Parliamentary Library, nor do they constitute professional legal opinion.

Any concerns or complaints should be directed to the Parliamentary Librarian. Parliamentary Library staff are available to discuss the contents of publications with Senators and Members and their staff. To access this service, clients may contact the author or the Library‘s Central Entry Point for referral.

Facebook LinkedIn Twitter Add | Email Print