Tax-based subsidies | Market Forces

How your taxes subsidise fossil fuels

There are a number of national tax-based subsidies that encourage fossil fuel production and consumption, adding up to a huge total of almost $11 billion each year.

Using estimates from the federal government’s Tax Expenditure Statement and Treasury papers, the table below lists a range of measures within the Australian federal tax system that encourage the production and use of fossil fuels. This is Australian taxpayers’ money subsidising fossil fuels.

These figures are only ever going to be a low estimate. Fossil fuel subsidies can be difficult to find in the tax system and it’s likely that some will have been overlooked. These figures do not include state-level subsidies, direct government handouts to coal, oil and gas projects, or public financing of international projects through export credit agencies or international financial institutions.

Take action - click here to tell Treasurer Josh Frydenberg: End polluter handouts!

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To the Treasurer Josh Frydenberg, Assistant Minister to the Treasurer Stuart Robert, and Finance Minister Mathias Cormann I'm asking you to end polluter handouts, to protect our climate, our communities, and our future. I'm very concerned about climate change and the impact it is already having on the lives of ordinary people. And if we're going to stop climate change, we need to stop funding it. Our governments continue to fund climate change with over $10 billion worth of handouts to big polluters per year. That's the equivalent of approximately $65 million of taxpayer-funded subsidies to big polluters just from the people in my electorate. About $430 from every Australian every year. These handouts encourage more pollution, discourage energy efficiency and block clean energy. They also put a massive black hole in the Federal budget and represent the most perverse form of corporate welfare. I want all political parties to commit to serious action on climate change to protect the future of our children, our communities, our economy and our environment. Sincerely,
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Subsidy (values in $AU millions)	2014-15	2015-16	2016-17	2017-18	2018-19
Fuel tax credit scheme**	$5,871	$6,117	$6,194	$6,308	$6,514
Statutory effective life caps (accelerated depreciation)***	$1,000+	$1,930	$1,850	$1,745	$1,650
Concessional rate of excise levied on aviation gasoline and aviation turbine fuel	$1,110	$1,260	$1,230	$1,280	$1,330
FBT – Application of statutory formula to value car benefits	$720	$740	$840	$850	$910
FBT – Exemption for employee taxi travel to or from their place of work*	$5	$5	$5	$5	$5
GST – Tourism; domestic air or sea travel*	$55	$55	$55	$55	$55
PRRT – Expenditure uplift rate*	$55	$55	$55	$55	$55
PRRT – Gas transfer price regulations*	$55	$55	$55	$55	$55
PRRT – Starting base and uplift rate for capital assets*	$55	$55	$55	$55	$55
Shipping – Investment incentives	$30	$30	$30	$30	$30
FBT – Alternatives to the logbook method of substantiating car expenses*	$550	$550	$550	$550	$550
FBT – Exemption for minor private use of company motor vehicle*	$55	$55	$55	$55	$55
FBT – Exemption for transport for oil rig and remote area employees in certain circumstances*	$55	$55	$55	$55	$55
Total	$8,616	$10,962	$11,029	$11,098	$11,319

* Values represent the middle value of a range estimated by Treasury. i.e. 5 is reflective of a Treasury estimate of 0-10, 55 reflective of a Treasury estimate of 10-100.

** Values taken from Australian Government Budget 2016-17, Budget Paper 1. and Australian Government 2017-18, Budget Paper 1.

*** Three latest figures taken from Budget 2015-16 Mid-Year Economic and Fiscal Outlook – Tax Expenditures

All other measures and their corresponding values are estimates taken from the Australian government Treasury’s Tax Expenditure Statement published 25 January 2018.

By far the largest contributor to the tax-based subsidies total is the Fuel Tax Credit Scheme, which provides around $6 billion worth of credits and grants to cover the tax paid on fuel to reduce its overall costs to heavy users. It’s estimated that some 20% of these fuel tax credits go directly to fossil fuel producers. We have included the full amount as it all goes to supporting the consumption of fossil fuels.

Australia also pays out large subsidies through statutory effective life caps, which allow for accelerated depreciation and a shorter write-off period for many vehicles. These tax deductions cost almost $2 billion worth of taxpayers’ money each year.

There are also a range of tax incentives for fossil fuel exploration and production, as well as measures encouraging aviation, shipping and motor vehicle use.

Previous work on this issue

Revealing the truth about fossil fuel subsidies

A Market Forces campaign in early 2013 raised $2,000 to cover the costs of Freedom of Information requests to the government. We asked which industries were pocketing our taxes through these subsidies, who was lobbying the government to keep their handouts in place and how we could start cancelling fossil fuel subsidies.

The documents revealed that the government had been under pressure from the mining industry who were worried about their $2 billion per year fuel discount (paid for by the Australian taxpayer) and that the government was considering options to scale back polluter handouts. Check out the documents here.

Australians are opposed

A survey commissioned by Market Forces in January 2013 showed overwhelming opposition to fossil fuel subsidies. Three times as many people believe that fossil fuel subsidies in Australia are too high than those who though they were too low, and 64% of Australians disapprove of the mining industry receiving a discount on their fuels such as petrol and diesel – a measure that costs the taxpayers $2 billion per year. Click here to view the results of the polling in full.

Undermining climate change action

Expenditure on fossil fuel subsidies dwarfs the government’s feeble spending on its Direct Action plan to tackle climate change. In fact, yearly spending on polluter handouts are almost equal to the total $2.55 billion that the Abbott government has committed to the Direct Action plan. This is an enormous policy conflict and amounts to billions of dollars wasted on policies that cancel out each other’s objectives.

Inefficient and wasteful

Subsidies represent a distortion of the market, which makes sense if we need to stimulate an industry or sector for our collective good. Instead, fossil fuel subsidies often end up in the hands of wealthy mining or prospecting companies. For instance, $2 billion each year is handed out to the mining industry in the form of fuel tax credits – essentially a discount on their petrol and diesel.

Australia’s commitment

In 2009, Australia joined an agreement at the G20 in Pittsburgh to phase out inefficient fossil fuel subsidies in the medium term. Since then, Australia has tried to play down the commitment, avoiding the issue by claiming we have no subsidies that fall within the scope of the G20 commitment.

Treasury disagrees, identifying 17 measures worth $8 billion that would need to be cut for Australia to meet the G20 agreement. In his 2011 climate change review update, Professor Ross Garnaut also listed the elimination of fossil fuel subsidies as a key measure for reducing carbon pollution.