Levy locked in, fuel excise on cards

Party unrest over 'deficit tax' in next week’s budget as govt also mulls fuel excise lift.

Tony Abbott is struggling to quell unrest over a “deficit tax” in next week’s budget as his government considers another incendiary revenue proposal: lifting fuel excise for millions of motorists.

As Liberal MPs attacked the “virtual confirmation” of the personal tax increase, the government faced mounting fears it would slug families at the fuel pump.

The Australian understands that officials have canvassed making the first increase in fuel excise in more than a decade and that ministers have not ruled out the reform when confronted with industry concerns about the change. Lifting the fuel excise would rank as one of the most substantial “structural” changes to the budget as Joe Hockey talks of making long-term reforms and his colleagues privately warn of unpopular measures that will overshadow the deficit tax.

Fuel excise has been frozen at 38.1c a litre since 2001 when John Howard, who was facing a political backlash about the introduction of the GST on petrol, ended twice yearly indexation. Mr ­Abbott e­merged from a federal cabinet meeting yesterday to declare that voters expected tough decisions in Tuesday’s budget but wanted them to be fair for all parts of the community.

“I’m going to be able to look people in the eye on Tuesday night and on Wednesday morning and beyond and say we are all in this together, we are all doing our bit.”

Mr Abbott will make a ruling on the deficit levy as soon as today after cabinet discussed — but did not finally decide on — competing proposals for a temporary tax increase on people earning more than $150,000 or $180,000 year.

While federal cabinet is expected to meet again on Monday, yesterday’s meeting left the final details of the deficit tax to Mr ­Abbott, Mr Hockey and Finance Minister Mathias Cormann, given that the budget papers are scheduled to be sent to the printers on Saturday.

Senator Cormann said the “only way” to ensure fairness was to use the income tax system to make sure those on higher incomes helped to repair the budget. “Any effort to repair the budget mess left behind by Labor ought to be spread fairly and equitably across the community and ours will be a temporary measure,” he said.

Government officials have canvassed a rise in the 38.1c-a-litre fuel excise in a move that could add more than a $1 billion in revenue to the budget.

The Australian has confirmed that a rise in the fuel excise of 3c a litre was raised during budget consultations with interest groups. A government spokesman last night declined to comment on any fuel excise rise.

The Howard government freeze on fuel excise has been criticised as a key structural flaw in the budget, with some estimates putting the cost of the move at more than $25bn over the past decade. If the government decides to increase the fuel excise it will face pressure from Treasury to reintroduce indexation to plug the structural flaw.

Any rise in fuel prices will spark a furious backlash from ­motoring groups, which will criticise it for driving up the cost of living. The freeze in the excise is costing the budget $5bn a year in lost revenue. Fuel tax would have been more than 15c a litre higher if the excise had continued to grow in line with inflation — as is the case for beer, spirits and tobacco.

Deloitte Access Economics ­director Chris Richardson said in 2012 that freezing fuel tax was a “pretty dumb policy and a costly one at that”.

“We have all these demands on the budget and we have a tax system that is not up to it and this is one of the reasons,” he said.

Mining companies and farmers would keep their fuel rebates, despite advice to the Greens that scrapping the rebates would save $10bn over four years.

Senator Cormann called the deficit tax an “immediate special effort” but would not reveal who would pay it or how much it would cost. One option is a 1 per cent tax on earnings over $150,000 and 2 per cent on more than $180,000 to raise about $6.2bn over four years, according to estimates from Deloitte Access Economics. Another is only a 2 per cent tax on earnings over $180,000 to raise $4.6bn and sharpen the political fight by making it harder for Labor to oppose a hit to the wealthiest.

Liberal MPs stepped up their criticisms of the idea yesterday, expressing concerns about the way Mr Abbott was handling the budget strategy. They not only rejected the deficit tax but rebuked cabinet ministers for allowing the controversy to run for 10 days without putting the issue to rest. “This seems to me to be just prolonging the agony of a politically stupid decision,” said one Liberal.

Queensland Liberal Teresa Gambaro criticised Mr Abbott for not consulting with colleagues on an unpopular measure that broke an election promise. “The proposed tax levy will reduce consumer confidence, it will stop people from spending, that in turn will have an impact on the business community and their ability to employ people,’’ she said.

Other federal Liberals to put their names to their objections to the “deficit tax” include Warren Entsch, Cory Bernardi, Zed Seselja and Ian Macdonald.

The Australian has reported three federal Liberals — Angus Taylor, Russell Broadbent and Ewen Jones — supported a deficit tax as part of wider budget changes.

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