Alliance backs diesel rebate

The scheme – also known as the diesel fuel rebate - has been subject to regular conjecture about its fate during pre-budget talks, especially given the government’s increasingly tight fiscal climate.

In particular, the Greens have attacked mining’s entitlement to the credits scheme but have been clear in defending agriculture’s right to remain involved.

However, the newly formed Fuel Tax Credits Coalition (FTCC) has outlined a strong case for continuation of the FTCS for mining and farming in the upcoming May budget, in a new 36-page report also released this week.

The Coalition includes the National Farmers' Federation, National Irrigators Council and Minerals Council of Australia.

In a statement, the FTCC said its publication, Powering Regional Australia: The Case for Fuel Tax Credits, argued the fuel excise was introduced to contribute to the cost of building public roads.

But it should not apply to diesel used off-road or in off-grid power generation.

The group also argued the tax provisions were originally founded on a fundamental principle of sound tax policy, namely that taxes on intermediate business inputs are inefficient and distortionary.

“The removal or weakening of the FTCS from Australia’s largest export and import competing industries would undermine industry competitiveness at a time when Australia needs to do all it can to expand the economy and secure good jobs, particularly in regional areas,” the FTCC said in a statement.

The report says the FTCS was subject to 690,710 separate claims in 2012-13 with agriculture accounting for 45 per cent, valued at $679 million or 13pc of the total $5.408 billion.

In contrast, mining was responsible for 1pc of those claims but comprised 40pc of the overall value totalling $2.13b. Transport was next, accounting for 21pc of the claims and taking 19pc of the overall value, totalling $1b.

The report also says that in 2014, Deloitte Australia nominated agribusiness, mining, gas, tourism and oil as five areas of comparative advantage for Australia - but noted they would suffer competitive disadvantages by removing the FTCS.

“Fuel is a vital business input for a range of Australian businesses within these sectors,” it said.

“It’s important to remember that a number of Australia’s international competitors levy no tax on diesel used in mining or agriculture.

“Limiting or reducing fuel tax credits would not only be devastating for many businesses, it would add significant cost pressures to Australia’s most productive sectors.

“Removing fuel tax credits would amount to a tax on Australia’s key export sectors.”

NIC chief executive Tom Chesson said the diesel excise rebate is not a subsidy or a handout, as the excise paid on diesel was originally introduced to pay for road infrastructure.

“To put it simply: we don’t pump water on public roads and we only receive the rebate for off-road use,” he said.

“Any government cuts to the scheme would be greeted with dismay by irrigated agriculture that is already reeling from the high cost of energy.”

NFF president Brent Finlay said food producers were only reimbursed for tax already paid on a key business input.

“The fuel tax credits scheme is critical for Australia’s agricultural sector, where food producers already operate without the subsidies enjoyed by our international competitors,” he said.

Minerals Council of Australia CEO Brendan Pearson said the FTCS enjoyed strong backing from both major political parties which his group welcomed.

“This report is designed to ensure that the false claims made by the Greens and some environmental activists gain no traction,” he said.

The report highlights 18 individual business case studies on the FTCS nationally, including several farmers from various States.

It quotes Hayden Cudmore - a third generation irrigation farmer outside Griffith NSW, who produces rice, wheat, canola, sheep and turf.

Mr Cudmore said Australians are the most efficient rice growers in the world but they operate on the “slimmest of margins”.

“Getting rid of fuel tax credits would increase our costs, further undermine our competitive capacity, impact on our ability to continue employing staff and basically make it difficult to stay farming,” he said.

It also quotes Queensland cattle graziers Rick and Ann Britton of Goodwood Pastoral Company, which runs 6000 cattle over 200,000 hectares.

Mr Britton said his business uses about 30,000 litres of diesel each year to power water pumps, in graders to maintain roads and undertake erosion control, in vehicles that travel across properties, to muster cattle and generate electricity to the sheds.

He’s also Mayor of Boulia Shire Council where about 80 per cent of ratepayers are involved in agriculture.

He said road works and maintenance alone sees council eligible for a $94,000 fuel tax credit, which is at the lower end of comparable shires.

But if the fuel tax credit was abolished it would impact the ability to upgrade and maintain local roads, he said.

“With a small ratepayer base, any increase in the cost of fuel or power generation would either see significant increases in rates or a decrease in services provided,” he said.

“Either way, it’s a bad outcome.”

Read the report Powering Regional Australia: The Case for Fuel Tax Credits here.

Fuel excise was introduced in Australia in the 1920s for the specific purpose of road funding.

It was extended to diesel in the late 1950s to help cover the cost of road building and maintenance.

Rebates for fuel excise are a long-standing feature of Australia’s tax system, existing in various forms for diesel since 1957.

From 1957 off-road diesel users were exempt from the excise at the petrol pump through an exemption certificate scheme.

Over time, governments determined this system had integrity issues and was difficult, and costly, to administer.

In 1982 the Diesel Fuel Rebate Scheme (DFRS) was introduced, which enabled eligible users to claim back the excise through the completion and submission of relevant forms to government.

The DFRS was limited to primary producers, miners, users of diesel for heating, lighting, hot water, air-conditioning and cooking for domestic purposes and for diesel fuel used at hospitals and aged care homes.

From 1 July 2000 the DFRS was extended to rail and marine transport. Rebate rates, which had varied according to use, were made equal for all eligible activities.

With the introduction of the GST in 2000 the diesel fuel rebate became claimable through the Business Activity Statement (BAS) in the same way, and at the same time, as GST credits.

In 2006 the Fuel Tax Credits Scheme was introduced.

The Fuel Tax Act 2006 broadened the criteria for claiming fuel tax credits by cancelling the urban-rural boundaries that previously applied and extending the rebate to lighter fleets.

Fuel tax credits are available to all businesses, in all parts of Australia.

It’s a long-standing policy principle that governments do not tax business inputs.

The introduction of this practice would add to business costs and create economic distortions.