WHC (ASX) Climate Change

Originally posted by Bad Walrus: ↑

Productivity Commission says fuel tax credit isn’t a fossil fuel subsidy

Despite accusations that the government is heavily subsidising fossil fuels, that doesn’t appear to be the case according to the Productivity Commission. Fuel Tax Credits provide businesses who have purchased fuel for their business with a credit for the tax (such as excise or customs duty) that is included in the price of fuel. Fuel Tax Credits benefit businesses using machinery, plant & equipment, heavy vehicles, and light vehicles travelling off public roads or on private roads. Heavy vehicles travelling on public roads can get the Fuel Tax Credit rate, however, it is reduced by the heavy vehicle road user charge. The heavy vehicle road user charge currently reduces any fuel tax credits to zero for gaseous fuels.

Heavy vehicle charges are set out to ensure vehicles that cause more wear and tear on roads or travel further, pay more. The National Transport Commission outlines that heavy vehicle charges aim to recover heavy vehicle related expenditure on roads from heavy vehicle operators. Charges are a combination of registration and fuel-based road user charges. The recommended heavy vehicle charges are calculated based on principles set out by the Council and Council of Australian Governments (COAG).

Adept Economics got in touch with the Productivity Commission after it outlined in its latest Trade and Assistance Review that, according to its estimates, the mining sector receives a much lower level of industry assistance (from the federal government) relative to its economic contribution than manufacturing or agriculture.

Some commentators had claimed that the federal government’s fuel tax credit for business is a $7.8bn fossil fuel subsidy (e.g. see the Australia Institute’s Fossil fuel subsidies in Australia), but the Productivity Commission has provided Gene with a great explanation regarding why the fuel tax credit isn’t actually a subsidy.

The Productivity Commission states that:

"The Australian government introduced, as early as in 1929, an excise on fuel (initially on petrol, later on diesel and other fuels) to charge the road users and subsequently introduced Fuel Tax Credits Scheme to remove the effect of the excise on business inputs to ensure that production decisions are not distorted. Like the goods and services tax (GST) system, fuel tax credits simply ensure the end consumer pays the tax only for transport use of fuel on-road.

However, the way in which fuel tax credits are administered may make it appear that they act as a subsidy because of payments from the government back to business. The reason that the government introduced a rebate system was it was more efficient and administratively easier (similar to the concept of input tax credit mechanism for the GST) to charge all users the same price upfront for fuel and have eligible users claim back the excess excise, than to have the complexity and integrity issues involved in a certificate system in which eligible users are not charged excise at the pump.

As such, while it looks like a subsidy, the fuel tax credit (to primary production, mining and other off-road users) are effectively rebates of the excise tax levied on road users"

Expand

Thanks for providing that information.

I accept that the subsidy appears to be a bit of a grey area - perhaps not a subsidy as initially thought.

The figure I initially quoted ($12.4b) was made up of mostly the fuel tax excise, so I wonder what the other ~$1..5b is comprised of.

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(20min delay)
Last $8.43		Change -0.120(1.40%)		Mkt cap ! $7.052B

Open	High	Low	Value	Volume
$8.55	$8.55	$8.38	$37.85M	4.471M

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