Morgan Stanley economist Chris Read estimates rising petrol prices will increase fuel costs for Australians by $12 billion in 2022, or about $1,100 per household.
This led independent senator, Rex Patrick, to call on the Morrison government to reduce excise duty on fuel to lessen the blow to households.
However, Treasurer Josh Frydenberg played down those calls, arguing that excise revenue is spent on transport infrastructure, including road improvements in urban and regional areas.
From The Australian:
Independent Senator Rex Patrick has called on the government to provide a temporary fuel excise tax reduction of 44.2 litres.
With less than three weeks to go until the March 29 budget, Josh Frydenberg was evasive on the proposal, refusing to allow or rule out a tax cut. “I’ve seen a lot of speculation in this regard,” the treasurer said in a radio interview on Thursday. “As you know… that money goes to transportation infrastructure, and that’s important in all of our cities and all of our regional towns.”
Mr Frydenberg said the fuel excise helped pay for the government’s $110 billion infrastructure pipeline.
“So it’s money coming directly from fuel excise that goes back into regional roads, into big urban transport projects,” he said. “When it comes to fuel prices, Australia is a price taker of the world price of a barrel of oil”…
History does not repeat itself but it certainly rhymes.
In 2001, just before the 2001 Federal Election, the Howard government took the short-sighted decision to freeze Australian fuel excise duty at 38.14 cents per litre, abandoning the six-month CPI increase that had long been a feature of the Australian excise system.
Faced with an assault on the rising cost of living, John Howard’s decision was a purely political game aimed firmly at getting re-elected. However, the budget paid the price, with lost excise revenue reaching around $5 billion a year – a figure that has increased over time as inflation took hold:
In 2015, the Coalition reinstated the bi-annual fuel excise indexation – a policy that was expected to bring the budget $23 billion in revenue over the next decade and $3 billion over a forecast period. of four years.
Reducing excise duties on fuel, as demanded by Rex Patrick, would be another short-sighted move that would hurt budget sustainability and fiscal efficiency.
The indexation of excise duties on fuels helps broaden the tax base. It is also an efficient tax, creating a “marginal excess burden” (i.e. the loss in consumer welfare relative to the net gain in government revenue) of only 15%, according to the Henry Tax Review. This loss of efficiency is comparable to that of personal income tax (marginal excess burden of 24%) and corporation tax (marginal excess burden of 40%).
In addition, an increase in fuel excise duties provides environmental benefits by effectively acting as a pollution tax. As noted by the Henry Tax Review:
…the excessive burden of excise duties on fuels may be overestimated as fuel consumption has social and environmental costs. These externalities can be reduced because excise taxes limit fuel consumption, which would improve welfare.
There are good financial, economic and environmental reasons for the Coalition to reinstate the indexation of the fuel excise, thus correcting one of the wrongs of the Howard era. It must remain in place for the sake of budgetary and environmental sustainability.