Mining companies get a free ride on fuel excise deal

AAP Image/Lukas Coch

In Abbott and Hockey’s Australia, it seems the age of entitlement only extends to mining companies. After being blocked in the senate earlier this year, the federal government has this week pushed forward with its contested plans to reintroduce fuel excise indexation.

AAP Image/Lukas Coch
Source: SMH

The reintroduction of indexation of fuel tax means that as of 10 November 2014, Australians will pay 38.60 cents of tax for each litre of fuel they buy, up from 38.143 cents. The tax will then increase annually, in line with inflation.

On a number of levels, this is a sensible policy. It will encourage drivers to be more efficient and to switch to electric and other low emissions vehicles, and will ensure tax collection keeps pace with inflation.

However, this the Government’s plan fails in the equity stakes. While household fuel bills are estimated to increase by between $20 to $140 a year, some of Australia’s most profitable companies will continue to have the fuel tax refunded to them under the Fuel Tax Credits Scheme.

The total bill for this refund was $5.4 billion in 2012-13 and is estimated to increase to $7.6 billion within just five years. This is in the top 20 expense programs in the federal budget, costing more than parents’ income support or federal funding for government schools. The stark perversity of providing such generous benefits from the pockets of Australian tax payers to some of the country’s most profitable companies can no longer be justified.

Without doubt, the mining industry is by far the largest beneficiary of this policy, accounting for $2.1 billion, or 39% of the total bill for the Fuel Tax Credits scheme.  The coal industry is the largest beneficiary within the mining sector, claiming $767 million in total and an average per claimant of $941,000.

The capital phase of the mining boom is over for now. The production phase, however, continues.  With this, fuel use will increase and the bill for fuel tax credits to the sector will increase too.  

If Australia is serious about fuel efficiency and becoming less dependent on fossil fuel, we need to remove fuel tax credits that subsidise fossil fuel use for the very companies producing it. Rather than crippling the mining industry, this would encourage greater fuel efficiency and send signals to investors to allocate capital away from companies with a high dependence on subsidies.

Polling for ACF in 2013 showed Australians would support this policy. The Lonergan Research poll found nine in ten Australians (91 per cent) believe the $2 billion given to the mining industry every year in fuel tax credits would be better spent on health and education.

While car owners are wisely being encouraged to become more fuel efficient, the mining sector continues to get a free ride, guzzling diesel, at a time when energy costs will almost certainly continue to increase. Such benefits do not extend to everyday Australian citizens or to other small business operators.

The government has done the right thing by re-indexing the fuel excise.  But individual Australians continue to do all the heavy lifting on fuel taxation.  It’s time for the mining industry to start pulling some weight.  Fuel tax credits were never justified.

If the age of entitlement is truly over, fuel tax subsidies for the mining industry need to go.

Tristan Knowles is an Energy Analyst for the Australian Conservation Foundation

Comments

13 responses to “Mining companies get a free ride on fuel excise deal”

  1. barrie harrop Avatar
    barrie harrop

    Mining fuel subsidies are costing Aust over $5bn per year –some free kick.

    1. juxx0r Avatar
      juxx0r

      They’re not though are they Barrie? Not one mention of farming or fishing that gets the rest of the subsidies. If like the article says that mining gets $2.1B of the $5.4B, then farming and fishing get $3.3B.

      Just another one sided hatchet job on the mining industry.

      1. Pedro Avatar
        Pedro

        It would be political suicide for any party especially the LNP to remove the subsidies from the farming fishing sector at this point. But the government could remove subsidies from the mining sector with the only fall out being political donations.

  2. Stan Hlegeris Avatar
    Stan Hlegeris

    Keep in mind that this subsidy to the mining industry is an efficient transfer of funds from Australian taxpayers to shareholders in the mining companies. About 80% of the shares in these companies are held by foreigners. An extraordinary export of taxpayer funds, for no return whatever.

    1. john Avatar
      john

      It is a subsidy however the tax is for road use and to change this would require a change in the bills as written.
      How on earth do you make the distinction between Primary Industry and Mining?
      Some farmers have mines on their property there are all kinds of hurdles to jump over here it is not as simple as road or off road perhaps some industries could be taken out that could target miners.
      Mind is it not about 5c or so returned to road funding the rest into consolidated revenue.

      1. michael Avatar
        michael

        it’s pretty simple if you just ‘don’t like mining’ or ‘foreigners’ as indicated above by Stan.
        always strange how these articles focus on the minor portion of the overall rebate total, that being the easy target of mining

        1. Pedro Avatar
          Pedro

          Looked at a different way why should tax payers prop up any business. If it can’t operate at a profit without subsidies then perhaps it should not exist in the market place. Abbott does have a point with the end of the age of entitlement. Just be consistent with it’s application.

  3. Tim Buckley Avatar
    Tim Buckley

    I’m with Stan. How can our Federal government ask all Australians to dig a bit deeper and pay more for everything, but retain a $2.1bn annual exemption to all those ‘Australian’ mining firms – Anglo American, Peabody Energy, Yancoal, Vale, Sumitomo, Itochu, Adani, Lanco Infratech, POSCO, KEPCO, … sorry – aren’t these miners multinationals? Didn’t the AFR run a series of stories last week about how multinationals in the main don’t pay their fair share of domestic Australian corporate taxes, using a multitude of legal and accounting loopholes, thin capitalisation, transfer pricing, offshore marketing divisions etc? How much corporate welfare do Abbot and Hockey have to give foreign firms? Next they’ll want to give some more tax payer money to fund CCS R&D grants and cut the Australian corporate tax rate!
    Good article Tristan.

  4. michael Avatar
    michael

    what’s the logical basis for removing it from mining but not farming? seems just a feel good exercise from people biased against mining or a feeling that ‘they can afford it’, which really doesn’t constitute a reason.

    1. Alen T Avatar
      Alen T

      I think the logic in that is very obvious , there’s a big difference between supporting Australian farmers and mostly multinational miners and I really don’t think it needs detailed explaining.

      1. michael Avatar
        michael

        so foreign owned (or partly foreign owned) farms wouldn’t get the rebate either?
        The Australians employed by the mining companies don’t deserve the same support as the farmers?
        i think it does need explaining.

  5. Tristan Knowles Avatar
    Tristan Knowles

    Thanks for the comments. There are issues to work through but we don’t think fuel subsidies can be put in the too-hard basket forever.

    Also, an edit, and apologies to RE and its readership. The line about coal sector should read that the coal
    industry receives the largest average rebate per claimant,
    $941,000. In aggregate they receive the second most, $767m, behind the metal ores sub-sector that received $908m.

    In terms of sector breakdown, agriculture, forestry and fishing as an entire sector receives less than the coal industry, $679m . Top four are as follows:

    Mining: $2.1b (39%)
    Transport, postal & warehousing: $1b (19%)
    Ag, forestry and fishing: $0.68b (13%)
    Construction: $0.41 (8%)

  6. morrislyda Avatar
    morrislyda

    Tony & Joe have stated multiple times “Government is not in business of subsidizing commerce”. They have abolished mining & carbon taxes – what could possibly justify further subsidies to Mining, Energy & Transport sectors when cutting in all public sectors and increasing household taxes?

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