The Howard Government decision in 2001 to cut indexation has cost the budget more than $46 billion in tax revenue to date. If no change is made the total cost to the budget is projected to top $160 billion by 2025.
Additional carbon dioxide emissions attributable to the policy are projected to reach 16 million tonnes by 2025.
A report released today from The Australia Institute also provided a breakdown of impact on lower income Australians.
“The cost of the Howard decision has massively blown-out over the years and the sooner a deal is made to reindex the excise, the sooner the bleeding will stop,” Executive Director of TAI, Richard Denniss said.
“By 2025, this policy will result in an extra 54 billion kilometres being driven and 16 million tonnes of carbon dioxide emotions.
“The two arguments against the policy have been about road funding and effects on poorer Australians, which this report addresses.
“Reintroducing the excise would add only 3% to the infrastructure budget, so while it’s likely to only have a minor impact on road funding, it is a significant contributor to overall government revenue.
“While the tax is regressive, it is important to differentiate between the regressive nature of this tax and the progressive nature of the tax system overall. Even in a progressive tax system, regressive taxes are used if they deter harmful behaviour, like excise on tobacco. Fuel excise provides some disincentive for fuel use, hopefully reducing congestion, urban air pollution and carbon emissions.
“The Howard Government’s decision to freeze the indexation has cost billions, and maintaining the freeze will cost the budget more and more every year,” Dr Denniss said.
The report estimates that, between 2001 and today, the excise freeze has produced:
- An extra 22.6 billion more kilometres of driving
- An additional 6.5m tonnes of carbon dioxide
- Increased pressure on traffic congestion
- Saved highest income earners $48 billion but saved only $15 billion for the lowest income earners