The decision by the former Morrison Government to halve the fuel excise as part of the Federal Budget on 30 March 2022 did two things. First, it delivered a material reduction in the cost of petrol and diesel for many motorists in the face of rapid fuel price escalations caused by global oil market concern about the impact of the Russia/Ukraine conflict on global oil supplies (i.e. Given Russia is the biggest exporter of oil and oil products in the world).
Second, and perhaps more significantly, the ensuing national media debate demonstrated a poor community understanding of how the excise (and fuel tax credit) works.
As many of us know, fuel excise is levied per litre of fuel. Unlike the GST it does not change with the fuel retail price. The quantum of excise is indexed by the Australian government twice a year (1 February and 1 August) in line with the Consumer Price Index (CPI). On 1 February 2022, for example, the Fuel Tax Credit increased from 43.3cpl to 44.2cpl
The Budget decision resulted in the halving of excise to 22.1cpl for a period of 6 months, returning to the full rate at midnight on 28 September 2022. Importantly, the resumption of the fuel excise was set in Federal Legislation and the legislation received bi-partisan political support.
One of the less understood aspects of the excise cut was that the fuel tax credit rates were reduced at the same time. Fuel Tax credits are made available to businesses that generally don’t use fuel for on-road activities such as mining, forestry, agriculture, construction, fishing, and the like. These businesses receive a full rebate of the fuel excise under the Fuel Tax Credit arrangements (refunded as part of the GST process) and so, the Fuel Tax Credit for these businesses was lowered to 22.1cpl on the same day that the excise was halved.
“That particular issue created real challenges for fuel distributors serving these industries – particularly farmers – as the Nation’s fuel businesses were holding an estimated 700M litres of fuel with the higher embedded excise on 30 March 2022 (i.e. 44.2cpl) – but their customers would only receive a Fuel Tax credit of 22.1cpl”, said ACAPMA CEO Mark McKenzie.
“This issue created a bit of a ‘stand-off’ between fuel suppliers and customers with many fuel businesses opting to take a significant loss on fuel stocks to keep their customers – an action that would have been unnecessary if the government had consulted with industry before the decision was made”, added Mark.
The other industry that receives a fuel tax credit is the road freight industry, but the Fuel Tax credit available to trucking companies only partially offsets the cost of the fuel excise. Prior to the excise cut, trucking companies received a fuel tax credit of 17.8cpl which reduced their effective excise rate to 26.4cpl.
When the Government reduced the excise rate to 22.1cpl, the fuel tax credit for trucking companies was suspended meaning that truck companies only netted a benefit of 4.3cpl (26.4cpl – 22.1cpl) per litre of fuel purchased – while private motorists enjoyed a more significant benefit of 22.1cpl.
This means that the changed excise arrangements introduced as part of the budget made no difference for farming and construction companies (i.e. they still paid net zero excise because of the fuel tax credit, delivered a 22.1cpl reduction for motorists but only a 4.3cpl reduction for trucking operators.
“When you consider that the cost of diesel borne by freight operators has a flow-on effect to consumers in the form of a higher costs for the transport of goods and services, the arrangements introduced on 30 March 2022 look a little odd”, said Mark.
Nonetheless, the arrangements were put in place and motorists have enjoyed lower excise fuel for the past 3 months and hoping that oil prices (and consequently fuel prices) will fall before the legislated return to the full excise rate of 44.2cpl at midnight on 28 September 2022.
Unfortunately, the same factors that were pushing up fuel prices before the excise cut have persisted in the period after the excise cut. While average fuel prices across Australia are lower than they would otherwise be, continued increases in the oil price have seen average fuel prices return to near the ‘record highs’ reported in March 2022.
And so, various industry and political commentators are asking if the new Albanese Government will stand firm on a return to full excise as originally legislated.
The short answer is a firm ‘yes’. Public statements made by the Treasurer and Prime Minister Albanese in recent days have categorically ruled out any extension of the current excise cuts.
“While the actual rate of excise does not impose any costs or benefits on our industry, what we are most concerned about is certainty of the timing of the excise change to avoid the customer confusion and significant business losses that occurred in early April”, said Mark
ACAPMA has no view on whether the government should extend the excise cut or not. We are, however, seeking a commitment to adequate notice being given should the Albanese Government decide to make any late change to the currently legislated timetable – an action that looks highly unlikely given recent public statements by the Federal Government.
“ACAPMA will continue to engage with the Treasurer’s office to ensure that the risks of a lack of notice to industry (and fuel customers) of any late change in the currently legislated timeframe are well understood”, concluded Mark.