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.