Alan Kohler: Don’t touch the petrol excise. It’s Australia’s carbon tax

The revenue forgone by cutting fuel excise would have to be made up elsewhere, writes Alan Kohler.

The revenue forgone by cutting fuel excise would have to be made up elsewhere, writes Alan Kohler. Photo: TND/Getty

Petrol excise is Australia’s de facto carbon tax; if it’s cut or removed that would confirm that the Morrison government is not serious about dealing with climate change.

It’s already one of the lowest gasoline taxes in the world, so it would make far more sense to remove taxes on electric vehicles. But not enough voters own them yet.

Petrol excise has been a political toy for the Coalition for 44 years.

It was imposed by the Fraser government in 1978, after winning the 1977 election. This was also two years after the Australian Academy of Science first reported that human activities were contributing to global warming, not that the petrol excise had anything to do with that.

Then Treasurer John Howard said Australians were enjoying artificially low prices for Australian crude oil after the oil shock of 1973, so he slipped in a petrol tax at 3.5 cents a litre, taking the price to an artificially higher 21 cents.

The tax is now 13 times that and the average price of petrol is about 10 times what it was then, so as it happens the rise in the excise has run ahead of the price.

A political toy

In the lead-up to the 2001 election, Prime Minister John Howard cut the excise by 1.5 cents a litre and froze the indexation of petrol excise that had been introduced by Paul Keating in 1987 – that is, he stopped the rate rising with inflation.

It was a popular move for votes, but unnecessary as it turned out: He beat Kim Beazley handsomely in November because of 9/11 and Tampa.

In 2008, the floundering Liberal Opposition leader, Brendan Nelson, promised in his budget reply speech to cut the petrol excise by 5 cents a litre, saying: “Petrol is now hurting Australians in every walk of life and in every part of the nation. There is only one way that an Australian government can actually do anything decisive about the price of petrol – and that is to cut taxes.”

His shadow treasurer, Malcolm Turnbull, loyally supported the plan but after he knocked off Nelson a few months later, the idea was quietly forgotten.

And then Liberal Treasurer Joe Hockey reintroduced indexation just after the 2013 election, in his 2014 horror budget.

Temporary fix

Australians still enjoy fairly low petrol prices – in most European countries they are 30 per cent higher than here, although in the US they are 30 per cent lower.

In any case, a temporary reduction of petrol excise would be pointless because the revenue would have to be made up somewhere else and the rise in the oil price is neither temporary, nor finished.

The oil market is in structurally short supply and the price is likely to stay where it is, if not move higher, for years to come – until it collapses entirely because no one is buying it any more.

The price definitely stays high if Russia is sanctioned permanently, including by Europe, and its 10 million barrels per day are removed from the market forever.

And that seems increasingly likely unless Putin is removed, because even if he withdraws his troops from Ukraine tomorrow it will take a long time for the world to forgive him for this.

Still, the price was heading higher well before Putin invaded Ukraine.

In simple terms, that is because global investment in fossil fuel production is being reduced before renewables and electric vehicles are ready to take over.

The best cure for high prices is always high prices, so it’s likely that $US100-plus per barrel will bring on some more supply. It’s also possible that Iran and Venezuela will be conveniently forgiven and allowed to rejoin the oil market to replace Russia.

Fundamentally, though, fossil fuels are on the way out and so is investing in them, but it will be a while before we’re all driving electric cars and even longer before we’re flying electric planes and sailing electric ships.

Fossil fuel tax

In the meantime, Australia’s fossil fuel producers are making a fortune because of the high prices for their products, including natural gas and coal, so now would be a good time to have a Resources Super Profits Tax.

Oh wait, there was going to be one in 2011 when commodity prices were booming and the oil price was last at $US100 a barrel, but that tax cost Kevin Rudd the prime ministership.

His successor, Julia Gillard, turned it into the Mineral Resource Rent Tax on iron ore and coal, which was triumphantly repealed by the Abbott Government in 2014.

There has been a Petroleum Resource Rent Tax since 1987 but it’s hopelessly inadequate and easy to avoid.

The best thing the government could do now would be to introduce a proper resource super profits tax on fossil fuels now that the producers are making super profits again and use the money to subsidise renewable energy and electric vehicles to speed up net zero.

That’s not going to happen, of course, but at least we have a de facto carbon tax on petrol.

Alan Kohler writes twice a week for The New Daily. He is also editor in chief of Eureka Report and finance presenter on ABC news.

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