Jan Davis: An outstanding example of policy insanity

It will come as no surprise to you to learn that the federal government is preparing a nightmare budget to be brought down on May 13.

Those of us who are not baby boomers are going to have to work forever; we are going to have pay a levy (not a tax) to help bring down the deficit; and it has been floated that farmers will lose some if not all of the diesel fuel excise rebate.

The rebate that farmers receive on farm diesel has just 26 per cent popular support, according to some recent market research. That’s why politicians think they can make an example of farmers when they have to tighten the belt at budget time.

The history of fuel taxes in Australia is long and it is complex. It has been bound up in oil pricing, oil parity pricing, interstate inequities, climate change, lifestyle changes, you name it, fuel has been front and centre.

The excise on diesel fuel in Australia goes back to 1957. At a time when petrol was king, it was introduced to ensure that operators of diesel vehicles contributed to the maintenance of Australian roads.

This was a period of what economists call ‘selective hypothecation’. Individual taxes imposed by the government were directed at appropriate areas of expenditure, so fuel taxes were directed towards the cost of road maintenance; but taxes on cigarettes and beer, the big news stories of the day, went to general revenue.

However, the government recognised that people such as farmers, fishers and miners tended to use diesel fuel off the roads and highways, off the beaten track, in the paddock, on the mine site and therefore should not be expected to help fund the maintenance of roads as they were not contributing to the ‘wear and tear’ maintenance which would be funded from the taxes collected.

As a result, the government of the day ruled that the diesel excise should only apply to on-road users of diesel.

The tax collectors soon worked out that sorting out how to manage that distinction was not as easy as it may have seemed. In the end, the decision was that everyone would pay the tax, and off-road users could then apply for a rebate of the amount they had paid unnecessarily. Hence the scheme is called the Diesel Fuel Tax Rebate.

Hard–nosed free market economists hate subsidies and handouts, and are not too fond of rebates either. They have calculated that, with the excise (and the rebate) currently at 38 cents per litre, the notional “loss” to Budget revenue is put at $6 billion a year.

Agriculture is responsible for about $650 million; and mining is $2.3 billion.

In the current rush to find savings wherever possible, the eyes of the economic rationalists have lit up at what they are now presenting as easy pickings. Even better if, at the same time, they can have a swing at those greedy miners and the farmers who always have their hands out.

This is an outstanding example of policy insanity.

There is no suggestion that the annual income tax refunds we all look forward to are “losses” to the budget – they are a refund (or rebate) of overpaid taxes.

If you make a mistake in calculating your BAS and accidentally overpay (and that is so easy to do), there’s a refund or a credit on the next statement. No-one suggests these amounts are “losses” to the budget either.

And there is no suggestion that these are handouts to people trying to wiggle out of paying their fair share of tax.

Tasmanian farmers simply will not stand by and watch the diesel fuel rebate cut.

There is no reasonable argument to justify charging a road maintenance tax on fuel used by farmers in ploughing a paddock, using a harvester or running a diesel irrigation pump.

Any move to reduce or remove the rebate will add a yet another cost burden to farmers already struggling with increased costs and falling returns.

Agriculture has been identified as one of the five pillars of the national economy. The federal government has recognised that Australian farmers are facing challenges in being internationally competitive. Comments on their Agricultural Competitiveness White Paper proposal closed recently.

It doesn’t take a rocket scientist to work out that any changes to the diesel rebate will put farmers even further behind the game.

The population at large glazes over when you talk about rebates and subsidies, because this doesn’t affect them. They don’t understand them; and, in any case, they suspect they are all a rort.

That’s why fighting any change to the diesel fuel excise rebate is difficult, if not nigh impossible, battle to mount and win. But we have to fight it; and we have to win.
TFGA CEO Jan Davis’ Tasmanian Country column today