Research Note 13 2001-02

Aviation Turbine Fuel and Aviation Gasoline Excises

Richard Webb
Economics, Commerce and Industrial Relations Group
10 October 2001

The Federal government levies excises (and customs duties) on aviation turbine fuel (AVTUR) and aviation gasoline (AVGAS), which turbine-powered and piston-engined aircraft respectively use. This Research Note was written to explain why the excises are levied⁽¹⁾ and to provide background to the fuel taxation inquiry.⁽²⁾

Airservices Australia and the Civil Aviation Safety Authority

Airservices Australia and the Civil Aviation Safety Authority (CASA) are responsible for providing services to aviation. Airservices' principal functions are to provide air traffic control and airspace management; aeronautical information; communications; radio navigation aids; search and rescue alerting; and airport rescue and firefighting services. CASA's primary function is to ensure aviation safety.

Airservices provides terminal navigation, rescue and firefighting, and en route services, and charges users of the capital city and major regional airports to recover the cost of providing these services.⁽³⁾ But, in the past, for practical reasons, Airservices was not able to levy terminal navigation and en route charges on all AVGAS users.⁽⁴⁾ The cost of these services was therefore recovered through the AVGAS excise and most revenue was paid to Airservices. The remaining revenue was paid to CASA. As Airservices moved from network to location specific pricing for airports (discussed below) the excise on AVGAS was reduced. All AVGAS and AVTUR revenue (excises and customs duties) now accrues to CASA.

Location Specific Pricing

Under network pricing, the cost of providing services differed among airports. But Airservices' charges did not reflect these differences. Consequently, some airports cross-subsidised others.

Airservices introduced location specific pricing for airport rescue and firefighting services on 1 July 1997 when the excise on AVGAS was reduced by 0.6 cents per litre.

A problem with using AVGAS to recover the cost of terminal navigation and en route services was that only some aircraft used the services. Hence those that did not use the services subsidised those who did. The en route component of AVGAS was eliminated on 25 May 1998⁽⁵⁾ when the rate was cut by 2.6 cents to 14.083 cents per litre.⁽⁶⁾ Airservices now levies en route services on a user-pays basis. The terminal navigation component of AVGAS was eliminated on 1 July 1998 when the rate was reduced by 13.092 cents to 1.711 cents per litre.

Rate Changes

In addition to the changes related to location specific pricing, the rates of excise have been changed on a number of occasions since Airservices and CASA were established in 1995 (see Table). First, the excises have been indexed in February and August of each year to changes in the consumer price index. Second, rates have been adjusted to take account of under-recovery or over-recovery of the cost of providing services.

Two other adjustments to the excise rates are noteworthy. On 12 May 1999, AVGAS and AVTUR rates were each increased by 2.71 cents per litre. This had two components. The first was an increase of 0.391 cents per litre on AVTUR and 0.467 cents on AVGAS to fund a shortfall in the recovery of air safety costs. The second component was an additional 0.51 cents per litre imposed on both fuels to fund location specific pricing subsidies. The move to location specific pricing entailed substantial increases in charges at some airports. The Government decided to subsidise services at these airports by means of the 0.51 cents per litre surcharge. In 1999-2000, the Commonwealth paid $11 million to cap prices at regional and General Aviation Airport Procedures (GAAP) airports.⁽⁷⁾

The second adjustment was the increase of 0.036 cents per litre on AVTUR on 12 May 2000 to help fund the activities of the Australian Competition and Consumer Commission, which is responsible for regulating aeronautical charges at the major airports.

On 1 March 2001, the Government announced the abolition of excise indexation on petroleum fuels and reductions in excise on these fuels. With effect from 2 March 2001, excise on petrol and diesel was reduced by 1.5 cents per litre. Duties on aviation fuels were reduced proportionally.

AVTUR and AVGAS Excise Rates (cents per litre)

n.c.: no change

Source: Budget Paper No. 1, various years and sources in footnotes

1. For a history of the excises, see Denis James, '''Beer and Cigs Up!": A Recent History of Excise in Australia', Background Paper, no. 5, Department of the Parliamentary Library, 1995-96, pp.10-13.
2. Treasurer's Press Release No. 50, 8 July 2001 at: http://www.treasurer.gov.au/
3. Charges for 2000-01 can be found at: http://www.airservices.gov.au/business/price/contract2001/std2001.PDF format and at: http://www.airservices.gov.au/business/price/contract2001/determination.PDF format. Airservices also collects on behalf of the Department of Transport and Regional Services a meteorological services charge, and a noise levy charge at Sydney and Adelaide airports.
4. See Denis James, op. cit., p. 11.
5. Airservices has yet to disaggregate en route charges, which are based on weight and distance.
6. See Hon. M. Vaile, media statement T22/98, at: http://www.dot.gov.au/media/archive/vaile/1998/t02298.htm
7. GAAP airports are located at Archerfield, Bankstown, Camden, Jandakot, Moorabbin and Parafield.

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