Fuel tax credits are not a tax concession

Greg Jericho has a piece in the Guardian today setting out all the various subsidies and tax concessions and the like that the Australian gives out each year to various industries. All well and good. This is an important issue and its nice to have all the numbers in one place. But he includes the fuel tax credit. That is not correct; it is, however, a mistake everyone makes.

We have gone over this ground before – so to remind ourselves.

When you read through the budget expenditure the fuel rebate jumps out as being a huge number and people looking for savings would very easily categorise that as ‘Subsidy’ and mark it down for the chopping block. I was of the same view until I looked into the history of the rebate.

One of the most significant expansions of fuel excise occurred in 1957 when an excise on diesel was introduced to ensure that operators of diesel vehicles contributed to the maintenance of roads. It was at this time that the first exemption for excise was introduced, as diesel excise was only applied for on-road uses of diesel. This was because a formal policy of hypothecating excise revenue for road construction was still in place. …

In 1957, an exemption certificate scheme was set up to provide an exemption of excise for all off-road users of diesel fuel. This continued after the 1959 end to formal hypothecation of petrol and diesel excises to road funding.

In 1982, the Government abolished the exemption certificate scheme due to alleged abuse of the system, whereby on-road users were obtaining diesel that had been purchased duty free via the exemption certificate system.

The Diesel Fuel Rebate Scheme (DFRS) was introduced to replace this scheme. This effectively did two things:

• all users of diesel fuel were required to purchase duty paid fuel, with eligible users then being able to claim a rebate equivalent to the excise for certain off-road usage; and

• the rebate was limited to primary producers, miners, users of diesel for heating, lighting, hot water, air-conditioning and cooking for domestic purposes and for diesel fuel used at hospitals, nursing, and old-aged persons homes. It further restricted eligibility within these categories to only certain activities, for example, mining did not include quarrying.

So here is the story in a nutshell. The government initially introduced an excise on diesel fuel (as a hypothecated tax) on road users to finance road maintenance. So by definition non-road users shouldn’t pay the excise. So how to ensure that road users pay the excise and non-road users don’t? Over time different approaches have been introduced to collect the excise from road users but not from non-road users. At present the excise is collected from all diesel sales and then non-road users are refunded the excise. So while it looks like a subsidy and many individuals discuss it and describe it as a subsidy it isn’t a subsidy.

Many individual tax payers receive a refund at the end of the year having over-paid their income tax – nobody refers to that as a subsidy. So too being refunded fuel excise isn’t a subsidy. Instead of the refund being eliminated as being a subsidy, the Commonwealth should be paying interest on that money.

What is happening is that administrative convenience ends up driving actual policy. On that topic Stephen Dawson explained how tax-free petrol became subsidised petrol.

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39 Responses to Fuel tax credits are not a tax concession

  1. wreckage

    Scrap the excise and replace it with a suspiciously similar “congestion tax”.

  2. AP

    I have been making the same point on multiple websites recently. I am sick of miners getting picked on over this. When was the last time a mining truck pulled upmat the lights next to you? it is like saying that rail commuters are getting a subsidy because they don’t pay airport landing fees. Nonsense. Just like Wayne Swan’s “savings”.

  3. Fred

    Hospitals with diesel generators pay excise on their fuel and then claim the tax back.

    So Greg Jericho thinks hospitals should pay the tax and have less money to treat patients?

    Good one Greg.

  4. Snirtus

    Not only do we have the cost incurred in claiming the rebate back, we have lost the use of that money until it is refunded! Just like the GST!

  5. Zulu Kilo Two Alpha

    I am sick of miners getting picked on over this

    You aren’t the only one. When was the last time you saw a harvester or a seeding rig pull up at the lights next to you? And spare me from the fools who think it’s a subsidy – the rebate is worth about $10,000 a year to my agribusiness, and that is supposed to level the playing field, to enable me to compete with my heavily subsidised American counterparts.

  6. blogstrop

    … all the various subsidies and tax concessions and the like that the Australian gives out each year to various industries.

    The Australian is more powerful than I realised. Do the left hate it because they are not getting those subsidies and tax concessions?

    Never mind chaps and chapesses. The left still has a handy lead in the sinecure stakes, and various grants for nothing of value.

  7. H B Bear

    Greg Jericho has a piece in the Guardian …

    Aaaaaaand Striiiiiiiiiiike Twooooooo!! Teh Dumb’s finest economist though.

  8. JC

    I’m betting Jericho offers a correction. Actually I’m not.

  9. Richard Bender

    If we had a sensible way of imposing road user charging, we could abolish the fuel excise and end this stupid debate once and for all.

    The problem would be that a road user charge that accurately reflected the amount spent on constructing and maintaining roads would only raise about a quarter of the revenue that fuel excise does now. Then the Greg Jerichos of the world would talk about the cost of this outrageous tax cut.

  10. Sinclair Davidson

    You guys are being a bit hard on Greg Jericho – at least this time. This is a mistake everyone makes.

  11. JC

    No hash enough on the old leftist propagandist.

    I’m assuming the line showing assistance to property is the good old negative gearing pearl the left always drag out when they’re trying to collapse the rental market.

  12. Token

    You guys are being a bit hard on Greg Jericho – at least this time. This is a mistake everyone makes.

    Like the meme lefties go on about how the Howard/Costello tax cuts are “unsustainable”, messaging by the left is rarely a mistake.

    No mercy

  13. Token

    So Greg Jericho thinks hospitals should pay the tax and have less money to treat patients?

    They have to kill the patients to save them

  14. JC

    Ah, just as i thought.

    And it is worth acknowledging that the reason much of the assistance like the fuel tax concessions or negative gearing remains in place – or remains at its current level – has little to do with economics and more to do with political lobbying.

    So any business (and property rental is a commercial enterprise) claiming a tax deduction for interest paid is according to this propagandist receiving a subsidy.

    Bank issuing bonds to help their balance sheet are getting a subsidy because they are able to claim the interest as an expense. In fact interest paid on deposits for that matter would be a subsidy.

    Absolutely fucking amazing.

    I’m betting that even without looking almost all of his claimed subsidies outside of the the car industry is bullshit. Just made up bullshit.

  15. Bruce J

    A similar application of excise applies to Aviation Gasoline. If it is used in aircraft no excise applies but it does if used in road vehicles, but the road usage is so small it is not worth collecting. So all the hoons using Av Gas in their hot cars are getting a free ride! When are we going to hear about subsidising them? They also get away with using a fuel containing illegal quantities of lead!

  16. boy on a bike

    You guys are being a bit hard on Greg Jericho – at least this time. This is a mistake everyone makes.

    Sorry Doom Lord, but that is crap. If he’s writing for a newspaper, the least he can do is understand how the diesel rebate works. He should be pounded like a baby fur seal that is silly enough to wander into a SSM debate.

  17. H B Bear

    You guys are being a bit hard on Greg Jericho – at least this time. This is a mistake everyone makes.

    Nope. A lefty meme against those nasty Gaia raping miners. Exactly what you would expect from him.

  18. Eddystone

    You guys are being a bit hard on Greg Jericho – at least this time. This is a mistake everyone makes.

    No. I had this argument years ago on Jennifer Marahosy’s blog, with a leftie who was trying to push the whole “fossil fuels are heavily subsidised” line.

    If a non-economist such as myself can work this out from first principles, with a little googling to get the history of the rebate, then someone who writes about economics for a living should be on top of it.

    Of course, if they think it helps justify their chosen religion, they may be quite happy to push the lie.

  19. Arnost

    You guys are being a bit hard on Greg Jericho – at least this time. This is a mistake everyone makes.

    So we go easy on him and let the mistake / meme go on unchallenged? And you wonder why media trust is non existent…

  20. Hasbeen

    We used to get a bit crabby at having to pay what I still thought of as road tax on the diesel in our tourist day trip boats. When was the last time a 325 passenger catamaran pulled up beside you at the lights.

    With a fuel bill of over $350,000 a year, we paid to build a few roads, but it didn’t make the trip out to the reef any smother.

  21. sdfc

    With a fuel bill of over $350,000 a year, we paid to build a few roads,

    What gravel?

  22. .

    A good road will cost about $26 per square metre.

    A 7 m seal running for 1000 lineal metres of high quality seal and 6-12″ of roadbase will cost $182k.

    Indeed they could have built a couple of medium quality roads that run for a few kms.

  23. J.H.

    Yep as a Commercial fisherman operating prawn trawlers I often got into conversations where people thought our exemption on Diesel was unfair…. It isn’t until you point out to them that it is a Road Tax exemption and that there are no roads at sea, does the penny drop.

  24. mareeS

    “No roads at sea”

    That’s always been the rort with diesel. Boats pay to use roads (LFBs excepted).

  25. Andrew

    Too hard on him? The bloke alternates between a clown, a communist, and an outright liar. He should be tied to one of the SIEVs that arrives at Xmas and sent back as a swap to Indonesia for their gifts to us. And that’s NOT being too hard on him.

  26. Rohan

    Not only do we have the cost incurred in claiming the rebate back, we have lost the use of that money until it is refunded! Just like the GST!

    Snirtus, the fuel excise extends to all bulk quantity hydrocarbon solvent purchases. If you use these solvents for manufacturing purpose, you get the excise back when you process the BAS. It’s a joke and another administrative bourdon on these businesses in addition to the cash flow issue.

  27. boy on a bike

    Maybe this will help Jericho understand the rebate.

    Let’s imagine that the running of our sewerage system was funded by an excise on toilet paper, and that toilet paper consumed 95% of all paper used in this country – with newspapers making up the remaining 5%.

    In order to make the excise simple to collect, and to minimize leakage, the excise was levied at the source on all paper products, and producers of exempted products (ie, those that aren’t used for bum-wiping) could then claim a rebate.

    This would mean the Grauniad would submit a quarterly claim for rebate, since most readers (but not all) would not use it for wiping their backside.

    Would that mean that the Grauniad was subsidized?

  28. Mike of Marion

    BOAB,

    Well set out. Mike

  29. entropy

    You lot have not twigged to the underlying principle of Jericho’s reasoning. It goes like this:

    “All of your monies belongs to the government, and any it leaves you is just a bonus/ subsidy”

  30. boy on a bike

    I had to make a major assumption there about people not using the Grauniad for scraping cling-ons from their clacker. I’m not sure if that holds true in the real world.

  31. Token

    Maybe this will help Jericho understand the rebate.

    Good try, he doesn’t want to learn.

    If he was willing to accept such a reality, he would have got his hair cut like an adult so he could get a real job years ago.

    The premise Jericho is trying to advance is that taxes are “too low” and “unsustainable” so all the big unnecessary government grants & organisation which people like him live off will stay alive.

  32. gabrianga

    Not THIS Greg Jericho surely?

    The Public Servant who ran a slightly Left blog before “starring” on the “Drum” as an Abbott critic?

  33. IainM

    So what to make of claims that the fuel taxes raises several-fold more than is spent on roads?
    The NRMA (admittedly not an impartial source) claims “The Federal petrol tax collected will raise over $15 billion from drivers alone and only $3.5 billion will be returned to roads nationally this year,”
    And I recall Warren Truss saying prior to the election that most of the fuel tax revenue goes into general revenues.

    I agree IF it was a truly hypothecated tax then vehicles not using roads should be refunded, but I’m far from convinced this is the reality. I’m inclined to think at this point that the truth is somewhere between yours and Jericho’s … the fuel tax credit is part subsidy (in the relative sense) but not as much as many claim it to be.

    Thoughts?

  34. Andrew of Randwick

    Sinclair – I think you may have missed the concluding part of the story – as I remember it.
    .
    The diesel excise was then increased to ensure that domestic users were paying world parity fuel prices – with the argument being that the Australian economy should not develop in a biased way based on cheap fuel and nor should it be profligate with its energy use. And I think it also promoted domestic oil exploration and production.
    The DFR was then applied to miners and primary producers because they were competing in export markets and the low diesel price could be used as a competitive advantage.
    That other users (e.g. hospitals, nursing, and old-aged persons homes) got in on the DFR must have been some politicking along the way.
    Of course the whole argument about taxing the lifeblood of an economy and not exploiting a natural advantage of low fuel costs to the hilt is beyond me – perhaps economists can explain. And if the fuel excise is a good thing, why not have an excise on electricity?

  35. wreckage

    the argument being that the Australian economy should not develop in a biased way based on cheap fuel

    In other, other words, no cheap energy. hence, no manufacturing. You can’t have technology without energy. We voluntarily locked ourselves into a mining/ag economy.

    GENIUS.

  36. Famer Gez

    The ABC has for years misrepresented the rebate scheme as a subsidy. You are not subsidised by not paying a tax that you are ineligible to pay. Journo’s are so desperately ignorant of most business or tax issues that they are misleading the general public. Thank God for Terry McCrann.

  37. You guys are being a bit hard on Greg Jericho – at least this time. This is a mistake everyone makes.

    On the contrary, we are not being hard enought. Lack of a tax is not a subsidy, to call it a subsidy is stupid.

    Greg.Jericho.Doofus.

  38. The diesel excise was then increased to ensure that domestic users were paying world parity fuel prices –

    Thank you Malcolm Fraser.

  39. wreckage

    AUSTRALIA HAS CHEAP VEGETABLES! Better tax them until they reach “world parity” so we don’t get a malformed economy dependent on selling things!

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