Abbott’s great big excise on everything

Motoring groups attacking the government are talking the same kind of rubbish that polluters spouted about the carbon tax. The reality is that drivers are subsidised by the rest of the economy.

The budget rumour mill is running wild with speculation that the government will reverse John Howard’s 2001 political panic attack, and reintroduce rises on fuel excise to adjust for inflation.  

Raising the level of excise in line with inflation was originally introduced in 1983. According to the Australia Institute, the freezing of excise on petrol at 38.1 cents in 2001 has come at a cost to government revenue of $30 billion since it was introduced, so it was one very major panic attack.

Of course, if the government proceeds it just further illustrates that Tony Abbott’s pre-election antics were an elaborate comedy act which an important section of the media and the electorate mistakenly took seriously.

Motorist groups are already linking the dots – accusing Abbott of introducing a backdoor carbon tax. Actually, Labor didn’t have the guts to put a carbon price on carbon emissions from household use of vehicle fuel – undermining the integrity of the scheme.

But you know what – the motoring groups attacking the government are talking complete rubbish, just like major polluters did about the carbon tax.

Motoring lobby groups have for many years been spreading a myth that motorists get a raw deal. They claim that motorists pay more in excise than they get in road funding. But this is a very cute and narrow interpretation of the overall cost-benefit equation associated with motor vehicles.

The reality is that driving is subsidised by the rest of the economy. 

According to the Bureau of Infrastructure, Transport and Regional Economics, in 2011-12, total road expenditure by all levels of government and the private sector amounted to $19.5 billion. In comparison, the revenue collected from fuel excise, registration charges, driver’s licence fees, stamp duty and tolls amounted to $18.0 billion.

And this doesn’t also take into account other costs imposed by using our cars, most particularly the impact on the community’s health.

The impact of air pollution was estimated by BITRE at about $2.7 billion per annum in the year 2000. You’d need to scale this up considerably to account for rises in population since then. More importantly this study was narrowly focussed, missing a range of other costs imposed by pollution’s effect on health. In addition there are the costs of car accidents. BITRE estimated that the social cost of road crashes in 2006 was $27.1 billion which is not fully recovered through motoring insurance fees.

Just because excise will happen to keep up with inflation, rising by about a cent per litre each year, the poor will not suddenly be put on the breadline (social security payments are also indexed), and rural Australia will not wither on the vine. 

The reality is that governments need to raise revenue via taxes to pay for things. This is strangely even the case when that government is a Liberal-National one.

Joe Hockey and Abbott don’t have a magic wand that means that with the same public service personnel and institutions they can suddenly transform the productivity of health care, education and defence, while simultaneously making a significant chunk of the population disappear that are aged over 65 and drawing a pension.

So far there has been quite a degree of focus on the importance of how efficiently government spends money.

But we also need to consider how efficiently we raise the money for government to spend. 

Critics of increasing fuel excise say petrol is essential to many people’s way of life and increasing its cost will filter throughout the economy. Critics of the carbon tax say electricity is essential to many people’s way of life and filters throughout the economy.

This is all true. So what?

What are our alternative ways of raising revenue and would they be any better?

Now we could instead increase taxes on people’s income (via a so-called deficit levy) – yet aren’t people’s wages also essential to their way of life? And aren’t wages are a far more pervasive input cost across the economy than petrol or electricity?

Also, is a person’s income directly tied to the imposition of costs borne by the rest of society – like road building, air pollution and carbon emissions – which it would be good to minimise?

No doubt if the government indexes excise, Bill Shorten will run around claiming how poor old motorists will be slugged. He’ll scream and yell about how working families are struggling with the cost of living. But he won’t mention anything about the need to keep the price on carbon or advocate how we should perhaps implement more widespread road user charges.

And we’ll all be poorer for it.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles