WAFarmers column

horses for courses

Rathern than removing fuel rebates, government should charge road users on an individual basis to make it a fairer system

Above: Tailoring charges to drivers’ actual road use will benefit the rural population

Trevor Whittington – CEO WAFarmers

Unfortunately, only around half the revenue raised in fuel excise finds its way back into gravel and bitumen.

It must be federal budget time as, yet again, one of the left- leaning economic think tanks has come out with a call to end the diesel fuel ‘subsidy’ to farmers, miners and fishers as a means of repairing the budget and saving the environment. This year the think tank in question is the Australia Institute, which put out a pre-budget press release titled ‘Australian fossil fuel subsidies hit $10.3bn’, which was quickly followed by another one on the all-important topic ‘How to make the budget less sexist’. No doubt many farmers will have better things to do than read either paper but the repeated calls to remove the 42.7c rebate and now attempt to link the argument to climate change should concern all farmers. For those not familiar with the fuel excise debate, here is a brief history of fuel taxes in Australia and a proposal as to how we can once and for all put an end to calls to tax off-road users. In 1929, a fuel excise was introduced by the federal government with all revenue raised hypothecated (directed) into road programs. Then, in 1959, under pressure from economists like those at the Australia Institute, the hypothecation of petrol and diesel excises was discontinued on the grounds that the practice of designating the proceeds of a tax to a particular purpose was deemed to be economically unsound from a public finance policy perspective. In a perfect world all taxes should be paid into one big pool and then competing priorities fight for their share of the pie. But we don’t live in a perfect world and, in some cases, there is logic in user pays, user benefits. For example, those who use aeroplanes pay for the cost of the airport, those who use roads pay for the roads and everyone pays for defence because one day we will all benefit from remaining a free country. Most farmers will be surprised to know that that all the excise dollars raised from on-road fuel usage is not funnelled into the national road network – something that was acknowledged by the respected former National Party leader and minister for transport, John Anderson, many years ago. “While on the question of changes to petrol and diesel taxes, it is important to point out that the federal government does not consider diesel fuel excise to be a road user charge. Fuel taxes and the revenue they generate have no correlation to the amount of funds provided, whether to the states or nationally, for roads. Fuel excise today is a source of general revenue just like income and other taxes,” he said. Arguments for reinstituting hypothecation have been strongly resisted for the past 84 years by economists and a treasury that is always reluctant to tie a tax to a specific expenditure commitment, preferring the confusion of the budget papers to hide where the money comes from or goes to. The claim is it would be rare if the amount of revenue raised by a particular tax were to equal the desired level of expenditure for which the revenue was earmarked. But that’s not the point, tax payers like to know where their tax money is going and a higher fuel tax would make sense to road users so long as it all goes on roads. Unfortunately, only around half the revenue raised in fuel excise finds its way back into gravel and bitumen. In 2019-20 excise raised of $11.6 billion saw only $5.6 billion spent on roads. There is, however, one obvious way to fix this problem, which is to bring back the old hypothecated system of linking road usage to road funding. But, instead of using a fuel tax that fails to cover the incredible cost of traffic congestion and building expensive city freeways, we should be moving to an entirely new system using technology. What we need to do is follow the advice of Infrastructure Australia and scrap both the excise system and the expensive state-based licence fees (particularly on trucks); and replace them over time (starting with new vehicles) with a direct charging system that reflects each user’s own road use of the network, including the time and distance of travel, congestion levels and the individual characteristics of their vehicle, such as weight and environmental impact. This would capture the electric vehicles that pay no excise, while leaving the tractors in the paddock free of any road user chargers. Those that want to use an expensive freeway during peak time will be charged accordingly while those travelling on an empty country gravel road will be at the bottom of the payment scale. With such a system the government will be literally charging ‘horses for the courses they use’, with the added incentive for governments to build more mobile phone towers to cover regional connectivity gaps to capture addition road usage revenue. Now this is something the green left economists should be talking about, not attempting to extract funds from exporters to address their progressive priorities.