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The Australia Institute recently released a report finding that "Australian fossil fuel subsidies surge to $11.6 billion in 2021-22." Although there are many direct subsidies to the construction and maintenance of fossil fuel projects, by far the largest subsidy consists of tax expenditure on the "federal Fuel Tax Credits Scheme, at $8.07 billion, which exceeds the $7.5 billion spent on the Australian Army."

The value of the fuel tax credits scheme is apparently similar to the carbon tax which applied in Australia from 2012 to 2014, and "raised $3.8 billion in its first six months." The carbon tax was very controversial and dominated political conversations during that period. But fuel tax credits have received very little attention, despite being arguably a more significant driver of the carbon emissions the tax was intended to reduce, over a longer period (p 20 of the Australia Institute report):

Figure 8: Total cost of the fuel tax credit scheme per year

The Australia Institute has called attention to this issue for many years now, and environmental activists regularly refer to calculations dominated by fuel tax credits as a measure of subsidies to the fossil fuel industry. However, despite the election of progressive governments who were ostensibly in favour of measures to address fossil fuel emissions, and even temporarily succeeded in establishing a carbon tax, the specific issue of fuel tax credits appears to have received very little political air.

Why hasn't any political party acted to roll back fuel tax credits? Has a bill to achieve this ever been introduced or debated in Parliament?

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    I'm not sure what answer you're looking for other than the obvious (energy security). Even in the middle of the Russian war, Europe still buys fossil fuels from Russia.
    – uberhaxed
    Dec 8, 2022 at 19:30
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    Can you elaborate a bit more re. this particular subsidy? I don't know if it was here, but I recall a discussion about "fossil fuel subsidies". It turned out that in many cases what people were objecting to is making certain expenses relating fossil exploration and exploitation tax deductible - just like many expenses are tax-deductible for other businesses. Is this 8$B Fuel Tax Credit different in nature and specifically favoring the use of CO2 emitting fuels rather than biz-as-usual claim back of expenses? Financing infrastructure to facilitate coal mining is clearer subsidy. Dec 8, 2022 at 20:54
  • @uberhaxed I think the answer is a combination of politicians (a) fearing industry backlash, like the MRRT; (b) accepting economic advice that fuel excise tax is particularly damaging when applied to business activities, like GST/VAT which is refunded for business inputs; and (c) not caring about or expecting a nuanced public debate on tax issues. But that is just my feeling, and I would like to hear other opinions supported by relevant sources.
    – sjy
    Dec 9, 2022 at 2:25
  • @ItalianPhilosophers4Monica Fuel tax credits are specific to eligible fuels, which are all fossil fuels. They are a refund to businesses of excise tax paid by the fuel wholesaler and passed on to consumers, which is about 22 cents per litre of diesel. A tax credit is worth about 3× as much as an ordinary tax deduction for the same expenses, which would not fulfil the definition of "subsidy" used by the Australia Institute.
    – sjy
    Dec 9, 2022 at 2:33
  • Honestly, "the $7.5 billion spent on the Australian Army." seems to be the more interesting number in my book.
    – ohwilleke
    May 16, 2023 at 22:31

2 Answers 2

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The stated rationale for the tax is to pay for road infrastructure. Those who are using fuel for non-road purposes don't have to pay the tax.

From How Fuel Excise Pays for our Roads

All Australian motorists who purchase petrol and diesel at the bowser pay 46 cents a litre in fuel excise. Separately, a Road User Charge is paid for each litre of diesel by the owners of heavy vehicles such as buses, coaches and trucks on public roads.

This means that if you are driving a petrol or diesel vehicle on a public road – you pay fuel excise.

The Government provides a rebate (tax credit) on the fuel excise to some industries, like mining and agriculture, as their vehicles don’t use public roads.

Owners of pure electric vehicles (or other zero emission technology vehicles), which do not require liquid fuels, do not pay any federal fuel excise.

You might ask "If they're being charged to pay for the roads, are electric vehicles being charged?", and the answer is, that in at least some states of Australia, they are:

A fair and sustainable road user charge

A future distance-based road user charge will ensure all drivers are paying for their share of road use – regardless of the type of vehicle they drive.

Regarding whether Fuel Tax credits have received political air: Government could save $13 bn on mining fuel credits, depreciation: Greens (2014)

The Abbott government could save $13 billion if it fixed a tax distortion that unfairly favoured Australia’s mining industry, the Greens say.

New costings from the Parliamentary Budget Office show the government could save billions of dollars over the next four years if it abolished so-called fuel tax credits and accelerated depreciation tax concessions for the mining industry.

Both of those measures give a “huge advantage” to the mining industry over the tourism and manufacturing industries, the Greens say.

The costings show the federal budget could be strengthened if the government abolished fuel tax credits for mining companies, which are worth more than $5 billion a year.

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    It is true (and a valid answer to my question, +1) that the "rationale" that fuel excise pays for roads is widely accepted. However, I don't think it is the "stated rationale" of the government. The source cited is an advocacy group, and even they concede that "like almost all federal taxes, fuel excise goes into the Government’s general revenue." While the federal government does help with project-specific grants, primary responsibility for maintaining roads lies with state and local governments.
    – sjy
    Dec 10, 2022 at 17:35
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Fuel tax credits have been debated in Parliament, and the Government has defended them on technical grounds of economic efficiency.

On 9 November 2022, Kate Chaney MP and Allegra Spender MP criticised fuel tax credits in their Budget reply speeches.

On the same date, the Senate Economics Legislation Committee heard evidence on the issue from an assistant secretary of the Treasury in response to questions from Senator Nick McKim:

Senator McKIM: So a mining company burns diesel and then gets reimbursed for the excise paid on that diesel, but a pizza delivery driver burns diesel and they are not given a reimbursement for the excise they paid on that diesel. With regard to the mining company getting that reimbursement, that meets the definitions of a tax expenditure that I just read out, doesn't it?

Mr Francis: The purpose of the fuel tax credit system is basically to remove a tax impost on business inputs. Generally, we don't try to tax business inputs because it can lead to a cascading of tax, which economists generally regard as inefficient. You can end up with very high tax rates on certain things due to that cascading. Basically, with the fuel tax credit, the way we collect excise in the system is that it is levied at the refinery gate typically or the import terminal. That then is embedded as it flows through to users. Where there are business users, which is typically heavy vehicles, offroad use et cetera, the fuel tax credit essentially just rebates that embedded fuel excise in the system so as to remove the effective taxation on the business input.

Senator McKIM: Thanks, Mr Francis. However, it is ultimately a tax avoided, isn't it? The tax that people pay is actually reimbursed by the ATO. So the effect financially is the same as a super or a tax offset withheld by an employer, isn't it?

Mr Francis: No. I would regard it as different. Probably the analogy is in the GST system, where you have input tax credits. They are essentially there also to remove the embedded GST for each business so that you are not actually taxing the business inputs and the final tax impost is ultimately the end consumer's or household's.

The Minister for Finance, Senator Katy Gallagher, intervened to express support for the Treasury view:

Senator McKIM: The upcoming paper is going to show us who wins from, for example, superannuation tax breaks and capital gains tax discounts. Why wouldn't Treasury decide to include the winners—in other words, the people who have their fuel excise costs reimbursed—given that it is going to cost a pretty staggering nearly $40 billion over the forward estimates? Why wouldn't Treasury just want to put that data in there?

Senator Gallagher: I think it's for the reasons that Mr Francis has just outlined to you, to be honest. You obviously disagree with the way it is assessed or dealt with, but I think there's a pretty long-held view in Treasury and in governments about not taxing inputs to production.

While it appears that the Government supports fuel tax credits policy because of economic advice that "tax[ing] business inputs … can lead to a cascading of tax, which economists generally regard as inefficient," it should be noted that the "cascade" argument (which informs the design of value-added taxes such as the GST) does not apply to fuel excise tax.

A litre of fuel can be taxed at the import terminal without being taxed again at every stage of the supply chain, because the fuel is either burned, or sold by someone who is not liable to pay further excise tax. It is not a cascading tax that imposes sales taxes on products at each successive stage in the supply chain.

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