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) 

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]

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