Matthew Cawood, 04 December 2015

IN the renewed debate over the diesel fuel credit, there is one point of clarity – if you support its existence, it’s a rebate; if you don’t, it’s a subsidy.

So what is it? History offers some clarity.

1929: A fuel excise of a penny per gallon is introduced by the Federal government. Revenue raised is directed into road programs.

1957: A diesel excise is introduced for on-road use; off-road users are exempted by a certificate.

1959: Revenue from fuel excises is no longer channelled straight into road funding. Money raised from fuel goes into general revenue, and road funding allocated from that.

1982: The certificate exemption system introduced in 1957 for off-road diesel users has become unwieldy. Creative people have gamed the system. The Diesel Fuel Rebate Scheme (DFRS) is introduced. All off-road users are required to buy duty-paid fuel, with some eligible to claim a partial or full rebate because their diesel use is off-road.

This is important to farmers. Many buy a lot of diesel for machines that never leave the paddock, and do not impose a maintenance burden on roads.

As Jan Davis, former chief executive of the Tasmanian Farmers and Graziers Association, put it in an op-ed: “You are not subsidised by not paying a tax that you are ineligible to pay. It is like saying rail commuters are getting a subsidy because they don’t pay airport landing fees.”

Treasury is also clear that the DFRS is, in fact, a rebate.

In Treasury-ese: “Fuel tax credits are not a subsidy for fuel use, but a mechanism to reduce or remove the incidence of excise or duty levied on the fuel used by business off road or in heavy on-road vehicles. The incidence of fuel tax is intended to fall on fuel use in private vehicles or for other private purposes and in light on-road vehicles used by business.”

“Similar to goods and services tax input tax credits, fuel tax credits remove taxation from business inputs. Their purpose is to avoid distorting business investment decisions and behaviour that would occur through taxing business inputs.”

2000: The DFRS is extended to include “alternative fuels”.

April 2015: The Australian Conservation Foundation (ACF) brings out a report, Subsidising Big Coal, in which it argues that allowing big coal miners fuel credits through the DFRS means that the taxpayer is perversely supporting miners to profit from a polluting activity.

ACF says it has no axe to grind with farmers accessing the DFRS, but it suggests rebates be capped at $20,000 per business.

Doing so, it said, would cut the cost of the DFRS to the federal budget by $4-$5 billon per year – although the authors acknowledged that because neither companies or the Tax Office reveal fuel credit figures, the figures are imputed.

Now: At the COP21 climate summit in Paris Australia refuses to sign a statement of support for reform of fossil fuel subsidies.

The issue, it seems, is that the International Monetary Fund’s definition of “subsidy” is too broad, and could include fuel credits.

And, for Coalition MPs with mining interests in their electorate (and those who don’t believe climate change is anything to fuss about), any global move to lower fossil fuel production is an anathema.

So, is the diesel fuel rebate a rebate, or a subsidy?

It’s a rebate.

Except when you want to make a point that the fossil fuel business is underpinned by a complex range of financial support mechanisms – then, for the sake of a good headline (or tweet), it’s a subsidy.

Extracted in full from the Queensland Country Life.