BACKGROUND NOTE, 10 January 2012

Fossil fuel taxes

Richard Webb
Economics Section

Introduction

There are various estimates of the value of government subsidies to fossil fuels in Australia. These estimates range from around $8 billion to $12 billion annually.[1] Fossil fuels are also taxed. This paper identifies the fuels that are taxed, the forms that the taxes take and, where possible, quantifies the amounts collected.

Fossil fuel taxes

The Australian Government taxes a variety of fossil fuels. They include crude oil and condensate, natural gas, liquefied petroleum gas, ethane, compressed natural gas, and ‘refined’ petroleum products such as petrol and diesel.

Taxes that the Australian Government imposes can be classified as income (direct) or indirect. Direct taxes take the forms of excise duties, customs duties, and the goods and services tax (GST). Excise duties apply to petrol, diesel, ‘other’ fuel products (such as aviation fuels), and crude oil and condensate. Credits for excise paid are available to some users of fossil fuels—notably the mining, agriculture and transport sectors—under the Fuel Tax Credits Scheme.[2] Customs duty applies to imports of ‘excise-like’ fuels, for example, petrol and diesel. The GST applies to households’ consumption of energy—such as electricity and natural gas—and other goods and services that embody fossil fuels in their prices. 

The Australian Government also imposes a number of ‘indirect’ taxes on the profits of fossil fuel producers such as coal and petroleum extraction companies. The Petroleum Resource Rent Tax (PRRT) applies to profits from the recovery of some offshore petroleum production. Company tax applies to the profits of companies including those engaged in fossil fuel extraction and processing. 

Data sources and limitations

Data is available for the amounts raised by the PRRT and the excise duties. However, data is not available for customs duty revenue raised from the importation of fossil fuels, and for the GST collected on households’ use of fuel and power. The GST figures in the table below are therefore estimates. Data for financial year 2009–10 were chosen because of gaps in the data for subsequent years.

Estimated taxes on fossil fuels 2009–10

The following table contains estimates of some taxes on fossil fuels in 2009–10.

Table: Fossil fuel taxation revenue 2009–10 ($ millions)

Tax

Revenue

Income taxation

Petroleum resource rent tax

1297

Indirect taxation

Excise duties:

   Petrol

6339

   Diesel

6886

   Other fuel products

1842

   Crude oil and condensate

699

Subtotal excises

15 766

   Less: fuel tax credits 

-4944

Subtotal net excise

10 822

GST (estimated):

   Petrol

2100

   Electricity

980

   Gas

300

Subtotal GST (a)

3380

Total

15 499

(a) No estimates have been made for GST on diesel sales due to lack of data.

Sources:

Department of Finance and Administration, Consolidated financial statements for the year ended 30 June 2010, Commonwealth of Australia, Canberra, 2010, p. 79, viewed 19 December 2011, http://www.finance.gov.au/publications/commonwealth-consolidated-financial-statements/2010.html

Australian Taxation Office (ATO), taxation statistics 2008–09: fuel schemes, ATO website, viewed 19 December 2011, http://www.ato.gov.au/corporate/content.aspx?menuid=0&doc=/content/00268761.htm&page=48&H48 GST estimates: Statistics Section, Parliamentary library

Conclusions

Revenue from Australian Government taxes on fossil fuels exceeds the value of subsidies. The table shows that revenue from taxes on fossil fuels in 2009-10 was at least $ 15.5 billion. Assuming that the Australian Conservation Foundation’s (ACF) figure of $12 billion for subsidies is correct, the table shows tax revenue as exceeding subsidies by about $ 3.5 billion.

However, the table does not include revenue—such as company tax paid by coal and petroleum producers and processors—and therefore underestimates revenue. Consequently, taxation revenue exceeds the value of subsidies by more than $3.5 billion.

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[1].               Greenpeace Australia Pacific (Greenpeace), ‘Greenpeace tax reform priorities: Commonwealth tax summit, October 2011’, Greenpeace website, viewed 19 December 2011, http://www.futuretax.gov.au/content/taxforum/statements/community/Greenpeace_Australia_Pacific.pdf. See also Australian Conservation Foundation (ACF), ‘Australia spends $11 billion more encouraging pollution than cleaning it up’, ACF website, viewed 8 December 2012, http://acfonline.org.au/articles/news.asp?news_id=3308

[2].               For a description of this scheme, see Australian Taxation Office (ATO), ‘Fuel schemes essentials’, ATO website, viewed 19 December 2011, http://www.ato.gov.au/businesses/pathway.aspx?sid=42&pc=001/003/044