The purpose of the Fuel Tax Credits Scheme is to remove the effect of fuel tax on business inputs to ensure that production decisions are not distorted. Like the GST system, fuel tax credits simply ensure the end consumer pays the tax and in the case of excise, only for transport use of fuel on-road.

The way in which fuel tax credits are administered by the Australian Taxation Office may cause some to think of them as a subsidy because some money flows from the government back to business.

However the process whereby credits are claimed by businesses through the BAS was only introduced to improve administration.

The government switched to a rebate system because it’s more efficient to charge all users the same price upfront for fuel and have eligible users claim back the excess excise, than to have the complexity and integrity issues involved in a certificate system in which eligible users aren’t charged excise at the pump.

“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.”

Treasury, Submission to G20 Energy Experts Group

Major Australian industries that rely on off-road diesel

$125b Construction

$99b Mining

$50b Tourism

$40b Agriculture

$7b Forest and wood products

$9b Maritime

 

myths and facts

MYTH

Fuel tax credits are a “subsidy”

FACT

Treasury has repeatedly stated that the Fuel Tax Credit Scheme is not a “subsidy”.
“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.” (2011 submission to G20 Energy Experts Group)
“It is not a subsidy. It is just what the base ought to be.” (Senate hearing, June 2014)
Fuel tax credits are not considered a tax expenditure by Treasury, nor assistance by the Productivity Commission.

MYTH

Excise is not tied directly to road funding, so off-road users should pay

FACT

Fuel excise is an implicit road user charge. That’s why a “road user charge” applies to businesses using public roads in the form
of reduced fuel tax credits.
“This combination of annual motor vehicle registration and fuel excise could be viewed as a crude ‘two-part tariff’ for road usage. While road taxes are not hypothecated (that is, earmarked) to road spending, revenue from these taxes does cover the direct cost of infrastructure spending on roads and bridges...”
The Henry Review

MYTH

Capping fuel tax credit claims would leave most diesel users unaffected

FACT

Most farmers, irrigators and tourism operators use large amounts of diesel and would be hit by arbitrary caps, especially the most remote operators.
Any attempt to cap or carve out industries would undermine the sound policy basis of the fuel tax credit system.
Charging a road tax for diesel used off publicly funded roads is simply bad tax policy and would primarily hit regional industries and communities.

MYTH

Fuel tax credits encourage the use of fossil fuels

FACT

All businesses have an incentive to minimise costs including by limiting fuel usage. Diesel is an essential input that cannot be avoided for use in many regional businesses.
Large agricultural and mining equipment, ships, fishing vessels and ferries
require diesel.
Businesses and homes in remote areas located off the electricity grid also
rely on diesel generators.

Losing the fuel tax credits scheme would put extra pressure on families already facing rising business costs and stagnant farm gate prices.

Michael ChalmersFarmer, New South Wales

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We maintain the laneways to be as good as a gravel road, so we can drive at 100 km an hour to get things done quickly and safely.

David and Lyn SladeKendenup, Western Australia

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