The Albanese government has been urged to halve the $8bn a year in fuel tax credits it gives mining trucks, semi-trailers and other heavy vehicles, with a new report finding changes are crucial for budget repair and meeting emissions targets.
Fuel tax credits have been “gnawing away an ever-growing share of fuel tax revenue”, with only half of the current amount spent justified in economic or social terms, according to a Grattan Institute report released on Monday.
The report found the fuel tax credit scheme was “a political gift” from which large businesses mostly benefit.
Australia’s fuel tax is 47.7 cents a litre, however vehicles that only drive off-road, including trucks on mine sites and heavy machinery, are not required to pay any fuel tax.
The tax is incorporated into the cost of fuel at the bowser, with the government refunding this via fuel tax credits.
Vehicles heavier than 4.5 tonnes such as semi-trailers, buses and B-doubles only have to pay a reduced rate, and receive a partial credit of 20.5 cents.
The Grattan report notes that the issue of increasing government spending on fuel tax credits has become more significant in recent decades.
Fuel tax credits were introduced 40 years ago, but more favourable conditions for larger on-road vehicles were only put in place in 1999.
The report found that 10 years ago, credits reduced gross fuel tax revenue by 30% but this figure had now grown to almost 40%.
Marion Terrill, the director of the Grattan Institute’s transport and cities program and lead author of the report, believes cutting back the credits by half could reduce the structural budget deficit by about 10%, or $4bn a year.
From an environmental perspective, Terrill argues that halving fuel tax credits would help Australia’s reach its 2050 net zero emissions target because burning diesel contributes 17% of Australia’s total carbon emissions.
“There is no business reason why larger vehicles should pay less than smaller vehicles – in fact quite the reverse, since heavy vehicles do far more damage to roads,” the report said, recommending heavy on-road vehicles pay the same rate as utes, vans, cars and small trucks used by businesses.
The report advocates that the on-road fuel tax rate “should apply to all fuel used on-road, including fuel used for powering auxiliary equipment”.
Additionally, the report recommends that off-road heavy vehicles such as trucks on mining sites still receive some form of fuel tax credit – because they are not damaging public roads – “but at a lower rate than at present, to reflect the carbon emissions and other damage they cause to the community as a whole”.
“The usual tax-policy orthodoxy is that governments should not tax business inputs, to avoid skewing business decisions about what goods and services to produce and with what inputs.
“Important as these arguments are, they don’t hold when the input itself causes harm. And that’s the situation with burning diesel.”
Terrill said cutting fuel tax credits in half would be “a win-win”. “It would shrink the budget deficit and help Australia hit net zero carbon emissions by 2050,” she said.
Terrill also calculated that cutting fuel tax credits as per her proposal “would have next to no impact on household budgets”. “We calculate that prices at the supermarket would increase by an average of just 35 cents on a $100 grocery shop.”
The report notes the negative impact Australia’s trucking industry has on air pollution, which comes as the amount of freight moved by trains across Australia has plummeted and shifted to trucks in recent decades.
Just 2% of goods are now transported between Sydney and Melbourne by rail, down from about 40% in the 1970s, amid concern at the pollution and safety risks caused by the surging number of trucks on highways.
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