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Part 7: Issues the Inquiry is to have regard to

The Inquiry should have regard to the impact of existing arrangements and proposed changes on:

(a) The overall economic performance of the Australian economy, including promoting domestic competition and international competitiveness;

(b) Fuel suppliers, downstream industries and consumers;

(c) The welfare of regional, rural and remote communities;

(d) Externalities associated with transport;

(e) The use of fuels that would deliver better air quality and contribute to greenhouse objectives; and

(f) The flexibility and sustainability of government revenue.

Terms of reference, paragraph 5

The terms of reference require the Inquiry to have regard to the above issues in considering options for government.

While the Inquiry will not be considering any options until after submissions have been received and consultation undertaken, it is interested in comments on the impact on the issues outlined above of:

• existing arrangements for fuel taxation, rebates, subsidies and grants; and

• changes which members of the community may wish to suggest to existing arrangements.

7.1 Impacts on the Australian economy

Part 4 of the paper outlined the importance of fuel in the Australian economy.

The Inquiry seeks comment on how existing fuel taxes, rebates, subsidies and grants impact on:

• the overall performance of the Australian economy;

• promoting domestic competition, particularly in relation to the effects of the current differential rates of excise and eligibility for current rebates, subsidies and grants on competition between industry sectors; and

• Australia's international competitiveness, particularly in relation to the role that fuel plays as an input into production and the role of rebate, subsidy and grant schemes to offset the impact of fuel taxes on Australian industry.

7.2 Suppliers, downstream industries, consumers

Part 6 of the paper outlines retail petroleum pricing and marketing arrangements.

The pricing of fuel and marketing arrangements include a wide range of commercial practices. These vary with the type of fuel, the means of delivery and the purpose for which it is used.

The Inquiry seeks comment on:

• the impact of existing taxation arrangements on fuel suppliers, fuel using industries and private consumers of fuel; and

• the impact of existing fuel taxation on choices of fuels for users and existing or potential suppliers.

7.3 Regional, rural and remote communities' welfare

In this paper, the terms of reference have referred to the important implications of fuel taxation and rebates, subsidies and grants for regional, rural and remote communities. These include:

• the importance of petroleum products to the agriculture, mining and road transport sectors;

• rebate, subsidy and grant arrangements (Diesel Fuel Rebate Scheme, Diesel and Alternative Fuels Grants Scheme, Petroleum Products Freight Subsidy Scheme and the Fuel Sales Grants Scheme) that have eligibility requirements partly based around either geographic boundaries or industry sectors located in regional, rural and remote Australia; and

• the proposed Energy Grants (Credits) Scheme to replace the Diesel Fuel Rebate Scheme and the Diesel and Alternative Fuels Grants Scheme.

The Inquiry seeks comment on:

• the impact of the current arrangements on the welfare of regional, rural and remote communities; and

• any suggestions for changes to these arrangements which would improve the welfare of regional, rural and remote communities.

7.4 Externalities and environmental effects

Section 6.2 discussed environmental outcomes associated with fuel use.

The paper also discussed other costs associated with fuel use such as delays through congestion, noise effects from motor vehicles and air pollution.

There are a number of mechanisms available to address effects of fuel use, including emission charges and taxes, congestion pricing, vehicle efficiency and emission standards and road tolls.

The Inquiry seeks comments on:

• the externalities associated with fuel use and the appropriate methods of evaluating these externalities;

• the estimated costs and benefits to the economy of these externalities;

• the extent to which the current fuel tax, rebate, subsidy and grant arrangements address these externalities; and

• appropriate mechanisms for addressing externalities from fuel use.

7.5 Revenue flexibility and sustainability

This paper has outlined the relationship between fuel taxes and revenue collected by the Government:

• fuel excise is estimated to raise around $12 billion in 2001-02, representing 7.5 per cent of Commonwealth revenue, similar to the average contribution it has made over the last 15 years; and

• fuel taxes are considered an efficient revenue source because compared with some other goods, fuel consumption does not change markedly in response to price.

However, as also noted, the composition of fuel use to meet energy needs has changed over time and should continue to do so, reflecting:

• accessibility of new fuel sources (such as gas products);

• changes in technology;

• changes in the structure of the economy; and

• a range of domestic and international policy influences, including environmental issues and health considerations, as well as economic performance and international competitiveness.

Considering the current structure of Australia's fuel tax arrangements, the Inquiry seeks comment on the major influences on government fuel tax revenue into the future, particularly in relation to:

• potential changes in the composition of fuel use;

• developments in the production of alternative fuels; and

• technological developments in the use of fuels, including substitutability of fuel in particular applications, such as motor vehicles.

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