And the award for biggest fossil fuel subsidy goes to …. The fuel tax credit scheme!

by Audrey Quicke

The Federal Government collects around 42c for every litre of petrol and diesel sold at the bowser in Australia. For regular drivers, that tax is permanently embedded in the price of fuel. But for some businesses it is rebated through the Fuel Tax Credit Scheme.

For the 2021-22 year, Fuel Tax Credits will cost the Government a hefty $8 billion—the biggest fossil fuel subsidy in Australia. By 2024-25 it is estimated to grow to 9.8 billion. In fact, the Fuel Tax Credit Scheme cost the Commonwealth Government more than spending on the Australian Army or the Royal Australian Airforce capabilities and earned a spot in the budget’s Top 20 most expensive programs.

Not only does this scheme subsidise the consumption of fossil fuels, but the biggest beneficiary is also the mining industry. Based on ATO tax statistics, $3.5 billion of Fuel Tax Credits will go to the mining industry in 2021-22. This graph shows the breakdown of the fuel credit subsidy by industry (and mining sub-industry) over the forward estimates, based on ATO tax statistics.

Figure 1: Fuel tax credits by industry

Heavy vehicles also benefit from the fuel tax credit scheme. For vehicles over 4.5 tonnes the value of the fuel tax credit rebate is reduced by the Heavy Vehicle Road User Charge (RUC) on diesel fuel. The higher the RUC, the less heavy vehicles receive from the Government in fuel tax rebates. The RUC supposedly covers damage to roads caused by heavy vehicles, but in reality, is far too low to actually cover that damage. According to the National Transport Commission, heavy vehicle charges would have to increase by 13.4% in 2021-22 to recover the heavy vehicle share of road maintenance.

The RUC rate is meant to increase by 2.5% per year, but was frozen in 2020 to support the heavy vehicle industry during the pandemic – adding $20 million to last year’s fuel tax credit expenditure.

This year, Infrastructure and Transport Ministers have agreed heavy vehicle charges will rise by 2.5% to 26.4 cents per litre on 1 July 2021. A welcome move- but still nowhere near enough to cover road damage.

>  Back to Budget Wrap 2021

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