Petrol and Diesel excise reduction

Acting Treasurer and Minister for Finance and Administration,

the Hon John Fahey MP, today reiterated the Governments expectation that

the fuel industry pass on cost savings generated by tax reform, which

are estimated to reduce the price of petrol and diesel by around 1.5 cents

per litre (cpl).

“Today at least one major oil company has claimed

that it will receive no cost savings as a result of tax reform and consequently

motorists will have to accept a price rise at the bowser.

“This is false. Not only has Treasury modelling shown

that there are significant cost savings to the petroleum industry as a

result of tax reform, but economic modelling of both the Australian Trucking

Association and the Australian Automobile Association found significant

reductions in costs in that industry due to tax reform.

“I am sure that motoring associations, who claim

to represent the interests of the motoring public, will agree with the

Government that oil companies are obliged to pass on their tax-related

cost savings and not attempt to reap a windfall gain at the expense of

consumers,” Mr Fahey said.

Mr Fahey said the 1.5 cpl cost reduction estimate for

the petroleum industry was derived using Treasurys Price Revenue Incidence

Simulation Model (PRISMOD). PRISMOD is a highly disaggregated price

input output model of the Australian economy, which tracks the impact

of indirect tax changes on industry costs and prices.

All businesses will benefit from substantial cost savings

through the removal of WST and other indirect taxes and will be able to

claim an input tax credit for any GST paid.

Transport costs fall significantly. Fuel costs to business

will fall by around 10 per cent, as GST paid by business is claimable

as an input tax credit. Diesel falls by around 24 cents per litre

under the Diesel and Alternative Fuel Grants Scheme. The cost of trucks

and tyres also fall. These cost reductions apply from Day 1.

The petroleum industry also benefits from lower production

costs through savings in chemicals, maintenance, plant and equipment,

capital and running costs.

“The measures the Government has announced honour its

commitment that petrol prices need not rise as a consequence of tax reform.

Every Australian business is obliged to pass on the benefits of tax reform

and oil companies are no different,” Mr Fahey said.

CANBERRA

23 June 2000