Bills Digest no. 146 2008–09
Excise Tariff Amendment (Carbon Pollution Reduction
Scheme) Bill 2009
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Contact officer & copyright details
introduced: 14 May
House: House of Representatives
Schedule 1 on 1 July 2011 provided that
section 3 of the Carbon Pollution Reduction Scheme Act 2009
commences before 1 July 2011
; all other sections on the
day of Royal Assent.
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
The purpose of the Bill is to
provide temporary assistance to fuel users, by way of automatic
reductions in the excise on fuels, to help them adjust to price
rises resulting from the implementation of the Carbon Pollution
Reduction Scheme (CPRS).
Excise is one of two taxes imposed on fuels (the other is the
goods and services tax). The rate of excise on most fuels is 38.143
cents per litre (shown as $0.38143 in the
Excise Tariff Act 1921). The CPRS is likely to result
in higher absolute prices, and perhaps higher relative prices of
fuels compared with other goods and services. The Bill seeks to
provide temporary adjustment assistance to fuel users to ease the
transition to higher prices by amending the Excise Tariff Act
1921 (the Excise Tariff Act).
The Rudd Government made the commitment to provide temporary
adjustment assistance with respect to fuel prices in its CPRS White
Paper as follows:
The Government will cut fuel taxes on a
cent‑for‑cent basis to offset the initial price impact
on fuel of introducing the Carbon Pollution Reduction Scheme. For
three years, the Government will assess periodically the adequacy
of this measure and adjust the offset accordingly. At the end of
the three years, the Government will review this adjustment
The fuel tax reduction will apply from
1 July 2010 to all liquid fuels currently subject to the
general 38.143 cents/litre rate.
The tax cut will be based on the expected rise
in fuel prices flowing from the Scheme. As different fuels emit
different amounts of carbon when they burn, their prices will
increase according to the volume of their emissions.
To minimise compliance costs, an
across‑the‑board fuel tax cut will be made, based on
the impact of the Scheme on diesel prices. This will provide
cent‑for‑cent assistance for diesel users.
Because diesel emits more carbon than petrol,
the fuel tax cut will provide more than cent‑for‑cent
assistance for petrol users, which make up the majority of
motorists. However, diesel use is becoming more common as fuel and
vehicle standards improve. Basing the fuel tax cut on diesel will
ensure that the Government s cent‑for‑cent commitment
is delivered for both fuels.
The fuel tax cut on 1 July 2010 will be
based on the carbon pollution permit price established in the first
half of 2010 through auctions and market transactions.
Policy position 17.1
The Government will initially reduce excise and
excise-equivalent customs duty (fuel tax) on 1 July 2010 for
all fuels currently subject to the general rate of 38.143 cents per
litre. The tax cut will be based on the effect of pricing diesel
The Government detailed its proposed periodic adjustment
mechanism as follows:
The Government will periodically assess the
adequacy of the initial fuel tax cut and adjust fuel taxes
accordingly. At the end of the three years, the Government will
review this adjustment mechanism.
The Government will automatically assess the
fuel tax rate every six months. Assessment will be based on the
average permit price for the previous six months. If the average
price exceeds the price used for the previous cut, there will be a
further fuel tax cut. Any reductions will take effect on
1 February and 1 August each year.
Six‑monthly assessment strikes a balance
between ensuring that the cent‑for‑cent fuel tax cut
reflects permit price movements and minimising compliance costs for
A one‑month lag will occur between the
date the new fuel tax rate is calculated and the date the new rate
takes effect. This will give the Australian Taxation Office time to
communicate the rate change to businesses and allow time for
businesses to adjust their systems.
Reductions in fuel tax made during this
transition period will become permanent after three years.
The fuel tax rate will not increase if the
emissions price falls. The Government will only cut the fuel tax
rate (not increase it), to ensure that this assistance benefits
After 1 July 2013, the Government will
make a final assessment and, if needed, a final fuel tax cut will
take effect from 1 August 2013.
The assessment mechanism will be legislated to
make its operation transparent. The Government will review the
mechanism after July 2013.
Policy position 17.2
The Government will legislate to automatically
reduce fuel tax on a six-monthly basis if the average carbon
pollution permit price in the six‑month period exceeds the
previous reduction, including the initial one, in the period to 30
The dates in this commitment have changed with the government s
decision to delay the implementation of the CPRS. In particular,
the first excise reduction will take place on 1 July 2011, and
there will be fixed a $10 emission unit price which will cease on
30 June 2012.
This Bills Digest should be read in conjunction with the related
for the Customs Tariff Amendment (Carbon
Pollution Reduction Scheme) Bill 2009.
Details of the proposed Carbon Pollution Reduction Scheme are
set out in the Bills Digest for Carbon Pollution Reduction Scheme
The Bill has been referred to the Senate Economics Legislation
Committee for inquiry and report by 15 June 2009.
The Bill will reduce Commonwealth government revenue from excise
below what it would otherwise have been. The amounts involved are
being recalculated following the Rudd Government s decision to
delay the implementation of the CPRS and set the unit price of
emissions at $10 for one year.
For possible implications for state government revenue, see the
conclusions at the end of this Bills Digest.
Schedule 1 of the Bill amends the Excise
Tariff Act 1921.
The first excise rate reduction will be on 1 July 2011 when the
rate will be reduced by 2.455 cents per litre from 38.143 cents per
litre to 35.688 cents per litre. The 2.455 cents per litre is an
estimate of the initial increase in diesel prices resulting from
the implementation of the CPRS, and is based on an assumed emission
unit price of $10.
Item 5 substitutes the reduced rate of 35.688
cents per litre (shown as $0.35688 in the Bill) for the existing
rate of 38.143 cents per litre wherever it currently occurs in item
10 of the schedule of the Excise Tariff Act.
The government expects that after the first year of the CPRS,
diesel prices will continue to rise. The government therefore intends to
reduce the excise rate below 35.688 cents per litre to offset the
expected price rises. Item 1 inserts proposed
section 6AA. Reductions in the excise rate from 1
July 2012 will be based not on actual diesel prices but on changes
in the charges (prices) of auctioned permits. Further, the auction prices will be
based on a six-month average. Proposed subsection 6AA(1) defines
the 6-month average Australian emission unit auction
charge as the amount published under section 271 of
the Carbon Pollution Reduction Scheme Act 2009.
Proposed subsection 6AA(2) lists the five
rate-reducing days . The first of the
five reductions will be on 1 July 2012 and the last on 1 July 2014.
However, excise can be reduced only if auction prices have risen
since the last excise rate reduction. The five days will become
rate-reducing days only if the 6-month
average Australian emissions unit auction charge published during
the month preceding the relevant rate reducing day is greater than
the designated Australian emissions unit
charge . To make this comparison, several steps are
The first step is to identify the 6-month average Australian
emissions unit auction charge published during the month preceding
that day (author s italics). The Australian
Climate Change Regulatory Authority will publish this
The second step is to calculate the designated
Australian emissions unit charge (the designated
charge) in accordance with the procedure in
proposed paragraphs 6AA(2)(a) and
To calculate the designated charge, one needs to know the
6-month average Australian emissions unit auction published during
the month preceding the most recent rate-reducing day
(author s italics):proposed subparagraph
6AA(2)(a)(i). That is, what the auction price was the
month before the previous rate-reducing day. Again, this
information will be published.
Next, it is necessary to compare the price on the most recent
rate-reducing day with $10:
. proposed subparagraph
6AA(2)(a)(ii). If the result of the comparison is more
than $10, the result becomes the designated charge. If, on the
other hand, the result is less than $10, the designated charge is
the default figure of $10: proposed
Finally, the designated charge is deducted from the 6-month
average Australian emissions unit auction charge published during
the month preceding that day . A positive figure from this
comparison means that the excise rate needs to fall because
emission prices have risen since the last excise rate reduction. If
the comparison results in a negative figure, no change will be made
to the excise rate.
Having ascertained that a rate reduction is warranted,
proposed subsection 6AA(3) contains the formula
for calculating the rate reduction in the
excise rate. The Explanatory Memorandum explains two components of
the formula, namely the use of the two multipliers, 10/11 and
0.0027 as follows:
The amount of the fuel tax reduction will equal
the difference between the average unit charges (if positive)
multiplied by 10/11 (to remove the GST component of the price) and
then multiplied by 0.0027. The 0.0027 multiplier is the carbon
dioxide equivalent (CO2-e) emissions per litre of diesel
fuel in transport uses (emissions factor).
The effect of proposed subsection 6AA(4) is to
substitute the newly calculated excise rate for the former rate, by
reducing the former rate by the rate reduction calculated in
proposed subsection 6AA(3).
As their name suggests, blended fuels contain
mixed components. Fuel ethanol, for example contains petrol and
ethanol. Blended fuels are generally taxed at 38.143 cents per
litre. Existing subsection 6G(1) of the Excise Tariff Act contains
the formula for calculating the amount of duty payable on blended
fuels. This is the volume of the fuel multiplied by the current
rate of duty (38.143 cents per litre). From this calculated amount,
duty already paid is deducted leaving the amount payable.
Item 2 repeals subsection 6G(1)
and substitutes a new formula for calculating the amount of duty
payble on blended fuels. Under the
proposed formula the duty payable is equal to the volume of the
fuel multiplied by the notional rate
amount from which duty already paid is deducted to
obtain the amount payable. Item 3 sets the
notional rate amount at 35.688 cents per
litre. The combined effect of items
2 and 3 is to establish the
excise rate from 1 July 2011 at 35.688 cents per litre.
Proposed subsection 6AA(5) ensures that any
further excise reductions applying to fuels also apply to blended
One can ask why fuel users should be shielded albeit temporarily
from the price consequences of the CPRS. It could be argued that
adjustment assistance merely delays inevitable adjustment. Once
assistance has been provided, it may be difficult to remove it.
As it is, fuel users have been shielded from price rises by the
non-indexation of excise. The excise on petrol and diesel has
remained at 38.143 cents per litre since 1 March 2001 when the
Howard Government announced the cessation of all future indexation
of the excise on petroleum fuels to the consumer price index. The
real value of excise, that is, after taking account of inflation,
has therefore fallen. Had indexation continued, the excise rate
would now be more than 48 cents per litre. Arguably, the fall in the real value
of excise has contributed to the use of less fuel efficient
vehicles, and increased Australia s reliance on imported crude oil
and refined petroleum products and emissions of carbon dioxide. The
Bill does not propose to reintroduce indexation after the rate
reductions. Consequently, the real value of excise will continue to
fall. This could be seen as inconsistent with the goal of
increasing the relative prices of fuels.
The Bill seeks to ensure that a reduction in excise applying to,
say, petrol also applies to petrol blends, for example, fuel
ethanol. The government now pays a production subsidy of 38.143
cent per litre to ethanol producers, which is exactly the same as
the excise on the ethanol in fuel ethanol. However, there seems to
be no provision in the CPRS or elsewhere to reduce the ethanol
production subsidy when the excise on ethanol falls. This could
result in a windfall for ethanol producers.
Excise reductions will also reduce the GST on fuel. GST on
excise is currently 10 per cent of 38.143 cents per litre, that is,
3.8143 cents per litre. Lower excise rates will reduce the GST on
excise below 3.8143 cents per litre. For example, the GST on 35.688
cents per litre is 3.5688 cents per litre. The Bill, by dealing
only with excise, does not take account of the effect of reduced
GST on fuel prices.
All GST revenue goes to the states. The states may seek
compensation for the reduced GST revenue consequent to reductions
in excise rates.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277
2 June 2009
Bills Digest Service
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