Mining companies get a free ride on fuel excise deal

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.

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