"The Henry Tax Review argued that the diesel rebate is not a subsidy for the use of fuel:
The system is intended to remove or reduce the incidence of fuel tax from business in puts, so that its incidence falls primarily on certain private consumption of fuel. This limits the impact on production decisions. For example, fuel tax credits mean that all electricity generation using liquid fuels is effectively free of fuel tax, in the same way that coal or natural gas inputs to electricity generation are untaxed.
Similar arguments have been made by the Australian Treasury:
Fuel tax credits are not a subsidy for fuel use, but a mechanism to reduce or remove the incidence of excise or duty levied on the fuel used by business off road or in heavy on-road vehicles. The incidence of fuel tax is intended to fall on fuel use in private vehicles or for other private purposes and in light on-road vehicles used by business. Similar to goods and services tax input tax credits, fuel tax credits remove taxation from business inputs. Their purpose is to avoid distorting business investment decisions and behaviour that would occur through taxing business inputs.
Given the above, I was wrong to suggest that the diesel rebate is a “subsidy”. Taxing a business input (fuel) other than as a road user charge (or to address an explicit externality) goes against the principles of good tax policy."
