Sinclair Davidson (‘Public finance and bureaucratic convenience’) notes that through the passage of time what was once a kind of road-user-pays fee on diesel morphed into a subsidy. But that’s not the only thing to have done so.
Because, of course, what was once tax free petrol in Queensland became ‘subsidised’ petrol, all thanks to the proprietor of a ‘duty free store in suburban Sydney’, as the 1997 court case described it.
It was Mr Ha’s store, and in the early 1990s he and a partner were selling tobacco products from the store without holding relevant licences required by New South Wales law. Obtaining those licences required paying fees roughly in proportion to the amount made on tobacco sales.
The amounts were not inconsiderable. With back fees and penalties, the NSW Government eventually sought more than $22 million dollars.
Lots of fine and eminently arguable points of law are never authoritatively decided because it is in no-one’s interest to bear the legal costs. With this much money at stake, that was not the case here.
In the end, this case found itself in the High Court of Australia, and the pivotal question was whether the fee under the NSW law was an excise, within the meaning of Section 90 of the Australian Constitution. Under that provision the power to levy excises is ‘exclusive’ to the Commonwealth.
The Court decided narrowly (four to three) that it was indeed an excise, and so a significant shift in the finances of the Australian States commenced, since most states had similar arrangements to those employed by NSW, and for things beyond just tobacco products.
Petrol, for one.
Queensland back then was a rarity, in that its petrol was excise free. It seemed almost to be a point of pride. New South Wales did tax its petrol, a tax now held in effect by the High Court to be an unconstitutional excise.
A simple fix was arranged. Instead of each State raising its fees from these various commercial activities, the Commonwealth would raise them and pass the money back to the State governments. Really, all it would involve would be a few more public servants to manage the process.
Except for one wrinkle: under Section 99 of the Constitution the Australian government cannot ‘give preference to one State … over another State’. The Commonwealth could not apply an excise to petrol in New South Wales, but not in Queensland. It had to be uniform.
So, that was easy enough. Petrol prices in Queensland went up by the amount that the Commonwealth levied as an excise. They stayed more or less unaltered in New South Wales; it was only the destination of the money that changed for them.
The Commonwealth sent the amount of money raised in each State to the respective State. New South Wales continued to fritter it away just as before. Queensland reimbursed it to its petrol stations to the same level at which they’d paid it.
So the flow of money was convoluted, but everything was much the same as before, aside from that small Federal bureaucracy, plus another one in Queensland, to manage the process.
Everything was the same, that is, except the name. And there’s a lot in a name.
What before had been tax free petrol was now subsidised petrol.
With that name change the movement of Queensland’s petrol prices regime into alignment of that with the other States became inevitable.
Politically, removing a ‘subsidy’ is a much less unattractive option than raising a tax. So it was only a matter of time, but how much time? How long before memory of the reason for the ‘subsidy’ ebbed to make its elimination politically feasible?
Prior to the 2009 Queensland election Anna Bligh promised to retain the subsidy, so perhaps she judged that enough time had then not yet passed. But facing dire budgetary problems a few months later, she seems to have convinced herself that perhaps enough time had passed after all.