Indexation on petrol tax: what does it mean?

petrol taxThere are many things that influence the cost of petrol in Australia, including our exchange rate, international benchmark prices and competition. The fluctuation of these costs are not entirely under our (or the government’s) control. There is one cost which is entirely under the control of the Federal government though: the petrol tax. And with indexation on that tax resuming, it’s a cost that is about to rise.

Why?

Currently, the federal government collects fuel excise of 38.14 cents per litre – a dollar amount that has been static since 2001. The May federal budget, though, the government announced their intention to index (increase) this dollar amount twice per year. Indexation starts in November 2014.

How much?

The amount of tax per litre will increase twice each year, with the first increase raising the excise from 38.14 cents per litre to 38.6 cents per litre. That raise is estimated to cost an average family around $20 per year.

What’s the reaction?

A number of organisations have opposed the increase in tax, perhaps more so because of the way that it has occurred than the increase itself. The Institute of Public Affairs has called the increase undemocratic and unnecessary.

“The government is justifying this tax increase on the basis that it would only cost the average family 40 cents per week ($20.80 per annum), delivering $2.2 billion in additional revenue,” said IPA Senior Fellow Dr Mikayla Novak. “But as the prime minister himself said before the last election, Australia’s budget problem ‘is not a revenue problem. The problem is a spending problem. Burning a bigger tax hole through the wallets of motorists is not the most effective way to address a budget emergency.”

The National Roads & Motorists’ Association (NRMA) has pointed out that reintroducing indexation will raise an alarming $19 billion, direct from the pockets of motorists, over the next 10 years. NRMA President Kyle Loades said a bad policy was made worse when the Australian Government decided to sneak the tax increase through the Parliament by way of a special tariff proposal.

“There’s a reason why the Petrol Tax increase didn’t pass the Senate – it’s a bad policy that will hurt families who are already paying well above their fair share in tax every time they fill up,” Mr Loades said. “The NRMA does not subscribe to the Government’s argument that reintroducing indexation is necessary to ensure the tax keeps up with inflation. “

Interestingly, because the government did not get agreement from the Senate before forcing the legislation through, it may all need to be reversed again in another 12 months. We’ll just wait and see…

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