Excise cut a chance to drive change

Populist as the move appears, the federal government’s decision to cut the fuel excise should be lauded as appropriate for a conservative government.

But it is hard to feel that way about the move to halve the excise on fuel from 44.2 cents per litre to 22.1 cents, due to several factors.

To start with, its timing just before an election makes it appear cynical, especially as it is a temporary cut and there’s no guarantee it will last longer than the initial six-month window.

Then there’s the issue of cutting a major tax at a time when the government is heavily indebted due to its policies of largesse around the pandemic.

And let’s not forget this tax is specifically used to maintain roads, which means that money will need to be found elsewhere.

Having said all that, at least it is a move in the right direction and, as much as it is aimed at the average voter, it will be genuine relief for a lot of businesses that have faced rising costs in the wake of COVID-19 impacts on global supply and the more recent Russian invasion of Ukraine.

It is perhaps ironic the government chose now to cut the excise.

At around $1.50 per litre in the not-so-distant past, the federal take was about one third of the cost of a litre when you include the GST paid.

Halving the rate in late March when the price was well above $2 per litre would have a much lower impact, given GST alone was around 19 cents per litre.

History shows governments are hooked on this tax.

It grew from around 5.2 cents a litre in July 1980 to 22.4 cents a litre in February 1989.

Almost all of that was during the prime ministership of the late Bob Hawke, with the pace of growth of the excise outstripping the rise in the petrol price from about 30 cents per litre to 50 cents per litre over that time.

In effect, the current excise cut takes us back to that time.

That was before then-treasurer Paul Keating ousted Mr Hawke in 1991 to lead for five years.

It is also worth noting that the 2022 pre-cut rate of 44.2 cents per litre represented a good approximation of inflation over that period of a little more than three decades.

By the time Mr Keating was toppled by John Howard in March 1996, the excise had climbed to 36.3 cents per litre, a big jump from the recessionary period of the late 1980s and early 1990s when the excise rose at a slower rate.

It is also worth noting that, in 1994, a separate, lower excise rate was introduced for unleaded petrol, one of the first uses of a tax lever being used to steer consumers towards more environment friendly cars.

When John Howard became prime minister in 1996, the tax pile-on abated.

At its peak prior to the GST in mid-2000, the petrol excise was almost 36.7 cents per litre (36 cents per litre for unleaded) although with petrol at the bowser averaging a little over 78 cents for the year, it remained a big tax component and ran well ahead of inflation.

Some excise statistics show higher growth in the Howard years because, from 1997, the federal government added 8.1 cents per litre to the excise to compensate the states that lost the right to apply such duties.

The Howard government cut the excise to 40.4 cents per litre (38.1 cents per litre for unleaded) to compensate for the introduction of the GST in 2000, because the new consumption tax was calculated by a price that included the excise component.

That excise rate held firm for 15 years before the government led by Tony Abbott reapplied CPI indexing to the rate.

Hence, eight years later we arrived back at 44.2 cents per litre.

This government would do well to consider removing the excise and finding a new way to fund roads. Every day I count more Teslas on our streets.

If a fuel tax is meant to cover road usage costs, it will be increasingly ineffective.

In any case, the GST is a far better way to collect tax. It is a tax on consumption, based on the cost of the goods purchased, including transport.

Far smarter to do away with the fuel excise, increase the GST and leave the states responsible for roads.