Fuel Tax Credits are not a subsidy

Mining, fishing and farming operate “off road”.
  • Fuel excise was introduced in the 1920s for the specific purpose of road funding. It was extended to diesel in the late 1950s to help cover the cost of road building and maintenance. Originally, miners did not pay excise tax at all on diesel for off road use.

  • This reflected a simple point – the mining industry builds and maintains its own roads. The design of the current scheme, whereby fuel tax is paid and later credited, is simply a means of easing the administrative burden on government.

The fuel tax credit scheme removes tax from business inputs, similar to the GST.
  • The purpose of the fuel tax credits scheme is to remove the effect of fuel tax on business inputs; the same tax policy principle that underpins the GST. Economists have long recognised that avoiding taxes on business inputs helps promote efficient production and consumption decisions.

  • Treasury has categorically rejected the view that the fuel tax credit scheme amounts to a “subsidy”. In its 2011 submission to the G20 Energy Experts Group, Treasury stated: “Fuel Tax Credits are not a subsidy for fuel use, but a mechanism to reduce or remove the incidence of excise or duty levied on the fuel used by business off road or in heavy on-road vehicles” (emphasis added).

  • Nor is the scheme classified as industry assistance by the Productivity Commission. Contrary to false claims that the mining industry receives “billions” of dollars in subsidies, the Commission has found the effective rate of government assistance to the mining industry in Australia is “negligible”.

Claims for fuel tax credits are made by a wide range of industries.
  • Fuel tax credits offset some or all of the tax levied on fuel used as a business input. There were 668,000 separate claims for fuel tax credits in 2011-12, the largest single share by agriculture, forestry and fishing operations. Mining accounts for around 40 per cent of claims by value, largely because diesel fuel is a critical input for off road vehicles, generators and heavy equipment used by the industry.

  • Fuel tax credits play an important role underpinning production of goods and services in regional and remote Australia. Beyond mining and agriculture, heating, lighting and cleaning services for hospitals and aged care homes, use of emergency vehicles, and domestic household fuel use are just some of the activities which rely on the scheme.

A stable and competitive fuel tax credit scheme is vital to future mining investment.
  • Limiting fuel tax credits for diesel use is equivalent to a tax hike in an industry where diesel can account for up to one quarter of operating costs at some mines. This would make Australian mining projects even less competitive, weakening investment, output and employment.

  • Port Jackson Partners estimates that removal of the diesel fuel tax credit would increase operating costs on Australian mining between 4 and 7 per cent. Importantly, a number of Australia’s competitors levy no tax on diesel used in mining. 

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