NO.027

REPORT OF THE FUEL TAXATION INQUIRY

Today I am releasing the report of the Fuel Taxation Inquiry and announcing that the Government has decided against implementing the main recommendations of the Inquiry, as detailed below.

The Inquiry, announced by the Prime Minister on 1 March 2001, was asked to examine the existing structure of fuel taxation in Australia, including related rebates, subsidies and grants. The Inquiry was asked not to consider options that involve long-term real increases in the effective level of diesel or petrol taxes paid by businesses or private consumers.

I would like to thank the Committee for its work with the Inquiry. The members of the Committee were Mr David Trebeck (chair), Mr John Landels AC and Mr Kevin Hughes. The Inquiry consulted widely among consumers, business, and environmental organisations, as well as Federal and State Government agencies. It received more than 300 submissions and held consultations in Sydney, Melbourne, Brisbane, Perth and Canberra.

The main recommendations of the Inquiry were:

• that fuel be taxed on the basis of energy content and that this regime

  also apply to currently exempt fuels;

• the reintroduction of twice yearly indexation of all fuel excise and customs

  duty;

• replacing the existing Diesel Fuel Rebate Scheme, Diesel and Alternative

  Fuels Grants Scheme and excise concessions and remission systems with a Business

  Fuel Credit Scheme;

• the abolition of the Fuel Sales Grants Scheme and the Petroleum Products

  Freight Subsidy Scheme.

The proposal to tax all fuels based on their relative energy content would impose tax on previously unexcised fuels such as ethanol and LPG. This would have implications for the LPG retail fuel industry and LPG conversion businesses, and is also contrary to the Government’s election commitment to maintain excise exemptions for fuel ethanol and biodiesel. For these reasons the Government will not be implementing this recommendation.

The Government will not reintroduce fuel excise indexation. The indexation of fuel excise was abolished in March 2001 in response to community concerns about high petrol prices and the Government will not be revisiting this issue.

The replacement of the existing Diesel Fuel Rebate Scheme (DFRS), Diesel and Alternative Fuels Grants Scheme (DAFGS) and excise concessions and remission systems with a Business Fuel Credit Scheme for on and off-road users is similar to the Government’s policy in A New Tax System (ANTS). One of the concessions agreed with the Democrats to secure support for the passage of the ANTS legislation was that full rebates had to be restricted to certain classes of on and off-road use.

The Energy Grants (Credits) Scheme (EGS) announced in the Government’s Measures for a Better Environment package in 1999, to replace the existing DFRS and DAFGS is proposed to be implemented by 1 July 2003. The purpose of the EGS will be to provide active encouragement for the move to the use of cleaner fuels, while at the same time maintaining entitlements that are equivalent to those under DAFGS and the DFRS, including for use of alternative fuels.

Under the fuel taxation regime proposed by the Inquiry, the Fuel Sales Grants Scheme (FSGS) and Petroleum Products Freight Subsidy Scheme (PPFSS) would be discontinued. Both of these schemes were designed to assist regional and remote consumers, and people in these areas would be affected by the removal of the schemes. Therefore the Government has decided to maintain the FSGS and the PPFSS.

The Government will carefully examine the Inquiry’s recommendations for a production subsidy for ultra low sulphur diesel (ULSD) funded by an increase in the excise of all diesel. The Government has already made a commitment to apply an excise differential to encourage the early introduction of ULSD (with sulphur content of 50 parts per million or less). This excise differential will consist of an additional excise on regular diesel of one cent per litre from 1 January 2003, rising to two cents per litre for 2004 and 2005. A production subsidy would be aimed at easing the administrative requirements of applying the DFRS and DAFGS to two differently taxed types of diesel.

The Report of the Inquiry is available on the internet site http://fueltaxinquiry.treasury.gov.au/.

Contact: Niki Savva

02 6277 7340