Cut fuel tax credits to help budget and environment

The $8 billion a year in fuel tax credits given to businesses should be cut in half, to help repair the budget and reduce carbon emissions, according to a new Grattan Institute report.

Fuelling budget repair: How to reform fuel taxes for business shows that only about half of the outlay is justified in economic or social terms.

Fuel tax credits are gnawing away an ever-growing share of fuel tax revenue: a decade ago, credits reduced gross fuel tax revenue by 30 per cent; today, it’s almost 40 per cent.

Winding back the credits could reduce the structural budget deficit by about 10 per cent, or $4 billion a year.

It would also help Australia hit its target of net-zero emissions by 2050, because burning diesel contributes about 17 per cent of Australia’s total carbon emissions.

At present, no fuel tax is payable for vehicles that only drive off-road, such as trucks on mine sites, and a reduced rate of fuel tax is payable for on-road vehicles heavier than 4.5 tonnes, such as semi-trailers, B-doubles, and passenger buses.

There is no business reason why larger vehicles should pay less than smaller vehicles – in fact quite the reverse, since heavy vehicles do far more damage to roads.

The report recommends that heavy on-road vehicles should pay the same rate as utes, vans, cars, and small trucks used by businesses.

Off-road vehicles and machinery should still be eligible for fuel tax credits, but at a lower rate than now, to reflect the damage their carbon emissions cause to the environment and community.

‘Cutting fuel tax credits would be a win-win: it would shrink the budget deficit and help Australia hit net-zero carbon emissions by 2050,’ says report lead author and Grattan Institute Transport and Cities Program Director Marion Terrill.

‘And cutting fuel tax credits in the way we recommend would have next-to-no impact on household budgets – we calculate that prices at the supermarket would increase by an average of just 35 cents on a $100 grocery shop.’

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