Bills Digest no. 105 2009–10
Excise Tariff Amendment (Carbon Pollution Reduction
Scheme) Bill 2010
WARNING:
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
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Excise Tariff
Amendment (Carbon Pollution Reduction Scheme) Bill
2010
Date introduced: 2
February 2010
House: House of
Representatives
Portfolio: Treasury
Commencement: The
main operative sections (Schedule 1) commence on 1 July 2011
provided that section 3 of the Carbon Pollution Reduction Scheme
Act 2010[1] commences before 1 July 2011. All
other sections commence on the day of Royal Assent.
Links: The
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
at http://www.comlaw.gov.au/.
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).
This is the third time this form of Bill, as part of the
eleven-Bill Carbon Pollution Reduction Scheme (CPRS) legislative
package, has been introduced into Parliament.
The Excise Tariff Amendment (Carbon
Pollution Reduction Scheme) Bill 2009 (the original Bill), along
with nine other CPRS Bills, was first introduced into Parliament on
14 May 2009. On 28 May 2009, an eleventh Bill was introduced which
completed the package. All the CPRS Bills were passed by the House
of Representatives on 4 June 2009—with government amendments
made to some of the Bills. On 13 August 2009, the Senate
voted down all of the Bills at second reading.
Following this, the Excise Tariff
Amendment (Carbon Pollution Reduction Scheme) [No. 2], along with
the other Bills in the CPRS package, was re-introduced into
Parliament on 22 October 2009.[2] They were passed unamended by the House of
Representatives on 17 November 2009, thus satisfying the three
month ‘waiting period’ required under the double
dissolution provisions of the Constitution.[3] The package of Bills was
introduced into the Senate on 17 November 2009. Following much
negotiation, on 24 November 2009, the government released
amendments to a number of the Bills, and these were subsequently
adopted by the Senate Committee of the Whole. However, following
the Liberal party leadership spill on 1 December 2009, the new
leader of the Coalition, the Hon. Tony Abbott, stated that he would
seek to have Senate consideration of CPRS Bills delayed until
Parliament reconvened in 2010 or, in the absence of a delay, vote
against the Bills at that time. With no delay forthcoming, on 2
December 2009, the Senate voted down the CPRS Bills for a second
time. This provided the government with a trigger to call for
a double dissolution election.
The CPRS Bills, including the Excise Tariff Amendment (Carbon
Pollution Reduction Scheme) Bill 2010, were again reintroduced into
Parliament on 2 February 2010 and passed the House of
Representatives on 11 February 2010. The content of the Excise
Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2010 (the
current Bill) differs slightly from the original Bill and from Bill
[No. 2]. The Digest for the current Bill highlights these
changes.
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:[4]
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 mechanism.
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
emissions.
|
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 industry.
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
motorists.
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.[5]
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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
June 2013.
|
The dates in this commitment have changed. 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
Bills Digest for the Customs Tariff Amendment (Carbon Pollution
Reduction Scheme) Bill 2010.
Details of the proposed Carbon Pollution Reduction Scheme are
set out in the Bills Digest for the Carbon Pollution Reduction
Scheme Bill 2010.
The original Bill, along with the others in the
CPRS package, was referred to the Senate Standing Committee on
Economics for inquiry and report by 15 June 2009. Details of the
inquiry are at
http://www.aph.gov.au/senate/committee/economics_ctte/cprs_2_09/index.htm
The Explanatory Memorandum does not identify separately the
financial consequences of the Bill. Rather, it shows the estimated
combined consequences of the Bill and related Bills as shown
below.
Source: Explanatory Memorandum, p. 8.
For possible implications for state government revenue, see the
conclusions.
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.[6]
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.[7] 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
2010.
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’.[8] To make this comparison, several steps are
necessary.
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 information.[9]
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 6AA(2)(b).
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
paragraph 6AA(2)(b).
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).[10]
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).
Proposed subsection 6AA(6) provides that if,
under proposed subsection 6AA(4), this Act
were to have effect as if another rate of duty were substituted for
a relevant rate on a rate‑reducing day, the Commissioner of
Taxation must publish in the Gazette the substituted rate
and the goods to which it applies.
The current Bill introduces a new proposed subsection
6AA(6A). This provides that the Commissioner of Taxation
must ensure that a copy of a notice under subsection 6AA(6) is
available on the website of the Australian Taxation Office.
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
payable 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 fuels.
Concluding
comments
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.[11] 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 Federal 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.
Richard Webb
19 March 2010
Bills Digest Service
Parliamentary Library
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2464.
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