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by John Cadogan

Fuel will not be subject to the carbon tax. (Cue collective motorists’ sigh of relief.) Prime Minister Julia Gillard announced on the weekend – curious timing – that fuel would be “forever exempt” from the carbon tax, even after it becomes an emissions trading scheme (ETS) in 2015.

Both the PM and Minister for Climate Change and Energy Efficiency, Greg Combet, are sticking to their guns, claiming thousands of Aussies will be better off under the carbon tax, which is slated to begin in July 2012.

Full carbon tax details are yet to be released, but ordinary Aussies and small business owners are in the clear – at least fuel-wise. It’s widely reported that the carbon tax will add as much as $1000 to the drive-away price of a new car, however. One of the unfortunate things about that is the effect on sales – medium-term, it could easily act to increase the age of new cars in Australia, with consequential poor implications for both road safety and emissions. None of the carmakers – in particular the local manufacturers – is especially chuffed at the prospect.

The carbon tax fuel exemption will prevent an immediate hike of about 6 cents per litre in petrol price (based on an estimated $25 per tonne kick-off carbon price) from July next year.

Big business, however, will not be exempt from paying a carbon tax on fuel. They’ll pay – possibly via a fuel-credit scheme.

The exemption for most of us is semantically curious. Liquid hydrocarbon fuels are based overwhelmingly on carbon. Octane, the approximate hydrocarbon in petrol, is 84 per cent carbon. Every kilogram of petrol yields about three kilos of CO2.

The three-for-one ratio is no magic trick – the O2 in CO2 comes from air, which as one astute CarAdvice commenter recently observed, actually constitutes a case of the Government finally figuring out a way to tax the very air we breathe… at least for big business.

What do you think? Is exempting fuel from the carbon tax fair enough, or should the tax be across the board – especially for carbon-rich fuels like petrol and diesel? Is there already enough tax paid on fuel?

To expand on that last question, let’s assume your fuel light is on, and you have to buy 50 litres of unleaded petrol now. If the pump price is $1.40, the cost will be $70. The 50 litres will take you about 500km in an average sort of car on the road today, a lot more easily than, say, riding a pushbike. Especially a pushie with three kids aboard as pillion passengers.

Let’s say you’re gainfully employed and earning between $80,000 and $180,000 annually. That would be the case for many – though not all – Australians. If you’re in that boat, every dollar you earn over $80,001 attracts 37 cents in income tax. So to spend $70 on petrol, you need to earn $111.11. The Federal Government gets $41.11 in tax, and you get to spend $70.

When you swipe your card at the servo, the Government also pockets fuel excise at 38 cents a litre and a 10 per cent GST. All up, on 50 litres at $1.40, that’s $25.36.

The total tax (excise plus GST plus income tax) in this example is $66.47 – that’s 60 per cent of the money you had to earn to buy that fuel. Or, to look at it another way, you can sit $111.11 on the kitchen table (actually you can’t – since 1c coins are no longer minted). You can divide it into two piles: ‘tax’ at $66.47 and ‘actually paying for the petrol’ at $44.64.

Perhaps this is the reason we don’t need greater taxation on fuel. What do you think? Is there already a consumption tax on fuel – correction: two consumption taxes – and is that enough? Is it enough to drive consumers away from excessive consumption at the required rate?

Above: Better infrastructure, in particular efficient mass transit systems in out big cities, would be another way to tackle emissions

Surely the Government’s objective with its carbon tax is to drive consumers’ future purchasing decisions towards more fuel-efficient vehicles, towards public transport and other less consumptive means of getting around. Is this not already happening? Holden and Ford, for example, are painfully aware that it is, with sales of the traditional big, Aussie sixes more or less cut in half in under 10 years.

Above: How high will fuel have to get before you decide the bus is a better alternative?

Are market forces (read: the elevated price of fuel) not already making consumers walk away in droves from larger cars? Is there not already a significant consumption–based tax regime on fuel that means big users, such as those who elect to drive V8s and sixes, or high-mileage motorists, already pay handsomely for the privilege? Is this existing tax plus the increasingly high price of petrol not already doing the job, consumption-wise?

Is pulling the carbon tax from fuel for most Australians a governmental policy ‘fail’? Or is it about time big business started kicking the tin, instead of hard-working middle-Australia? Is this an example of a carrot for the ‘slow’ part of the two-speed economy and the stick for those comfortably in the black, or is it a cynical PR move designed to grease the tax’s wheels on its way through the senate? Please tell us your view by commenting below.






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