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Fuel Taxation Inquiry Issues Paper

18 August 2001
© Commonwealth of Australia 2001
ISBN 0642 74079 8

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth available from Info Products. Requests and inquiries concerning reproduction and rights should be addressed to the Manager, Legislative Services, Info Products, Finance, GPO Box 1920, Canberra ACT 2601.

Printed by CanPrint Communications Pty Ltd

Contents

Part 1: Introduction

      1.1 Purpose of the Issues Paper 1

      1.2 Background to the Inquiry 1

      1.3 Outline of the Issues Paper 2

      1.4 Issues on which the Inquiry seeks comment 2

Part 2: The Inquiry processes

      2.1 The terms of reference - key tasks 3

      2.2 The terms of reference - scope 3

      2.3 Making a submission to the Inquiry 6

      2.4 Consultation 6

Part 3: Overview of fuel taxation objectives

      3.1 Fuel taxation as a source of revenue 7

      3.2 Other possible objectives of fuel taxation 8

Part 4: Role of fuel in the economy

      4.1 Which fuel types meet Australia's energy needs? 11

      4.2 Who uses fuel in Australia? 13

      4.3 Oil supply 15

Part 5: Fuel taxation in Australia

      5.1 Fuel taxation 19

      5.2 Rebates, subsidies and grants 26

      5.3 Measures for a Better Environment 31

Part 6: Issues the Inquiry will report on

      6.1 Efficient resource allocation 35

      6.2 Environmental outcomes 36

      6.3 Pricing, cost structures and marketing 40

Part 7: Issues the Inquiry is to have regard to

      7.1 Impacts on the Australian economy 46

      7.2 Suppliers, downstream industries, consumers 46

      7.3 Regional, rural and remote communities' welfare 46

      7.4 Externalities and environmental effects 47

      7.5 Revenue flexibility and sustainability 48

Part 1: Introduction

1.1 Purpose of the Issues Paper

The purpose of this paper is to assist individuals and organisations making submissions to the Fuel Taxation Inquiry, by providing background information and raising questions on the issues covered by the terms of reference.

This paper provides an overview of the main features of the taxation of fuel in Australia and associated rebates, subsidies and grants. It should not be seen as limiting the extent of issues to be addressed by submissions or the Inquiry.

The paper is the first of a number to be released by the Inquiry providing factual information about fuel taxation. It is intended that these papers not only assist those making submissions, but also inform the community more generally about the work of the Inquiry and Australia's fuel taxation system.

1.2 Background to the Inquiry

On 1 March 2001, the Prime Minister announced an inquiry into the total structure of fuel taxation in Australia.1

Following consultations the Treasurer and the Minister for Industry, Science and Resources announced on 8 July 2001 the terms of reference for the Inquiry and the Committee of Inquiry membership.

On 29 July 2001, the Chairman, Mr David Trebeck, announced opportunities for participation in the Inquiry. These include the Inquiry taking submissions from the public and undertaking consultation.

Copies of the press releases related to the announcements above are available from the Inquiry website at http://fueltaxinquiry.treasury.gov.au.

The Inquiry is due to report to the Government in March 2002.

1.3 Outline of the Issues Paper

This paper is in seven parts. The remaining parts of the paper are as follows:

• Part 2 outlines the Inquiry processes and summarises the terms of reference, which are shown in full on the inside front cover of this paper;

• Part 3 provides an overview of fuel taxation objectives;

• Part 4 provides an overview of the role of fuel in the Australian economy;

• Part 5 addresses that section of the terms of reference relating to issues which the Inquiry is asked to examine:

    - the existing structure of Australia's taxation of fuel and associated rebates, subsidies and grants at both Commonwealth and State levels;

• Part 6 addresses that section of the terms of reference relating to issues on which the Inquiry is asked to report:

    - resource allocation, environmental outcomes and the interplay between fuel taxation and petroleum pricing, cost structures and marketing arrangements; and

• Part 7 addresses that section of the terms of reference relating to issues to which the Inquiry is asked to have regard:

    - covering a range of issues including economic impacts and the welfare of regional, rural and remote communities.

1.4 Issues on which the Inquiry seeks comment

The Inquiry seeks specific comment on a number of matters which are set out in the following Parts of the paper:

• the role of fuel in the economy (Part 4, Box 4.1);

• administration and Measures for a Better Environment (Part 5, Box 5.3);

• resource allocation, environment, pricing (Part 6, Box 6.1); and

• the economy, regional, rural and remote communities, consumers, externalities and government revenue (Part 7).

1 This was one of a number of Government decisions that related to fuel taxation, including a 1.5 cents per litre cut in fuel excise, abolition of indexation of fuel excise rates and asking the Australian Competition and Consumer Commission to examine the feasibility of placing limitations on petrol and diesel retail price fluctuations.

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