The federal government has swooped on a Labor offer to reintroduce the twice-yearly increase of petrol excise, taking to almost $11 billion the budget savings negotiated over the past few weeks.

The petrol backflip sidelined the Australian Greens, who were negotiating to support the increase in return for allocating some of the billions in extra revenue the increase will create. But the Greens overplayed their hand by also demanding reductions to diesel excise rebates for mining and agriculture.

In a deal offered by Labor on Tuesday, and readily accepted by the government, all of the $3.6 billion that the indexation of excise to inflation will raise over the next four years, and the $23 billion it will raise over a decade, will be spent on roads.

Labor’s only condition was that $1.1 billion be dedicated to fixing and building regional roads in the next two years.

The shock deal, which is not expected to be the last, will take to $8.5 billion over four years the total in savings and revenue that Labor has agreed to back in the past month, coming on top of agreeing to scrap an increase to the tax-free threshold, scrap the dependent spouse offset and abolish $1.5 billion in pensioner benefits, including the seniors supplement.

On Monday night the government, with the support of the Greens, secured the passage through the Senate of $2.4 billion in cuts to the part pension, which Labor opposed. Labor has not yet made a decision, but a source said it was unlikely to reverse the pension cuts if elected next year. The cuts do not begin until 2017.

Labor leader Bill Shorten said Labor would assess the likely impact of the pension cuts before making a final decision.


The total $10.9 billion in savings negotiated with Labor and the Greens reduces to $13 billion the value of measures still stuck in the Senate from the 2014 budget.

The Howard government scrapped biannual indexation and froze excise at 38¢ a litre in 2001 in a panicked reaction to spiralling fuel prices and voter anger over the recently introduced GST.

Research to be released on Wednesday by progressive think-tank, The Australia Institute, shows the Howard government decision cost the budget $46 billion over the past 15 years and led to an extra 6.5 million tonnes of carbon dioxide emissions.

If the reintroduction of indexation had not occurred, that revenue loss would have amounted to $160 billion by 2025 and additional carbon dioxide emissions would have reached 16 million tonnes.

“The cost of the Howard decision has massively blown out over the years and the sooner a deal is made to re-index the excise, the sooner the bleeding will stop,” executive director Richard Denniss said.

The fuel excise increase was one of several broken election promises in the Abbott government’s first budget and Labor was severely critical of it at the time. Unable to secure it by legislation, the government enacted the increase by regulation in October last year. But the increase must be enshrined by legislation within 12 months or it will lapse and the revenue collected would have to be refunded to oil companies.

Mr Shorten defended the backdown, saying he had put pragmatism before politics and that the national interest had to come before political games.


“In a beauty parade, between giving money to oil companies and putting money back into Australian roads, generating jobs and confidence, it is clear which way Labor has to go,” Mr Shorten said.

“If Labor didn’t compromise … all the money that Australian motorists had paid would go back to oil companies.”

The successful negotiations in recent weeks have been conducted by Finance Minister Mathias Cormann, Assistant Treasurer Josh Frydenberg, shadow treasurer Chris Bowen and shadow assistant treasurer Andrew Leigh.

“This was a difficult decision for us, for our ERC [expenditure review committee], our shadow cabinet and Caucus,” Mr Bowen said.

“It provides an important economic stimulus; local government has projects ready to go right across the country, but they haven’t been able to be funded. It also ensures a contribution to the long-term health of the budget.”

During Tuesday’s caucus meting, Northern Territory MP Warren Snowden raised concerns about the impact of the increase on his voters, who live in remote areas and drive greater distances than most.

Greens leader Richard Di Natale said there should be investment in public transport and compensation for people on low incomes.

“You do need to make sure people are looked after by compensating them for the increase in the cost of fuel,” he told radio 3AW.

Senator Cormann said the impact of  the petrol decision would be about 40¢ a week for someone using 50 litres of fuel.

Extracted in full from the Australian Financial Review.