Australia's Future Tax System

Consultation Paper Summary

12. Fuel, roads and transport

Overview

The efficient movement of people and goods is an important contributor to productivity and wellbeing. Improving the structure of taxes and charges related to transport can improve efficiency.

Taxes on motor vehicle fuels provide a considerable share of revenue, but contribute little to reducing the location and time specific costs of motoring. Different tax treatments of alternative fuels may also further reduce the efficiency of fuel taxes. Different types of transport are also taxed in different ways, potentially altering economic behaviour.

There may be opportunities to replace existing taxes with more targeted taxes and charges that promote the efficient use of transport networks. In particular, emerging technologies may have a role in targeting the social costs of motoring such as air pollution, greenhouse gas emissions and damage to publicly funded roads.

Consultation questions

Q12.1 How can motor vehicle related taxes and road funding arrangements be designed to improve the efficiency of transport of people and goods in Australia?

Q12.2 What should be the role, if any, of fuel taxes? What does this mean for how fuels and their uses are taxed and the rates of tax applied?

Q12.3 Do the existing tax arrangements lead people to make economically inefficient transport choices, and if so, how might they be improved?

Key messages in submissions

Many submissions note that the purchase and use of motor vehicles are taxed more than other forms of consumption. Submissions also note that the use of motor vehicles imposes costs on society, through greenhouse gas emissions, air pollution, noise pollution, urban congestion and road trauma.

Some submissions see fuel tax as a way of addressing these externalities, though many see the CPRS as a better way of addressing carbon emissions. Some submissions argue that fuel tax credits constitute an inappropriate subsidy for on‑road heavy vehicles use and off‑road uses. Some suggest that the current tax system favours the use of cars over public transport. Others propose low tax for alternative fuels on environmental grounds or to encourage investment in infant industries. Some contributors suggest that a fuel tax system based on energy content would be an improvement over the current system.

Many submissions are concerned that transport taxes distort consumer choices between public and private transport, and between road, rail and air travel. Other submissions noted that governments earned 'rents' from issuing a limited number of taxi licences.

There is some support for applying road user charges to light as well as heavy vehicles, as a method of 'demand management'. Others suggest that registration, insurance and fuel charges be replaced by charges that reflect vehicle mass, distance travelled and the location of use. One suggestion is to charge for driving in inner‑city areas at certain times of day.

A few submissions suggest that revenue from pricing on specific roads should be returned to the road network in a way that reflects the roads from which it is collected. According to local government submissions, this may be an effective way to fund local roads.

Some submissions argue that stamp duty on motor vehicles and import tariffs are an obstacle to upgrading to more fuel‑efficient vehicles. Others suggest that taxes on the purchase of motor vehicles should promote fuel‑efficiency. Many submissions argue that the fringe benefits tax treatment of motor vehicles leads to their over‑use.

Some submissions consider that, because aviation fuel is lightly taxed, air transport receives a subsidy from the tax system. Some suggest that this is environmentally damaging because aviation is more energy intensive than other forms of transport. They also suggest that this favoured more wealthy Australians who can afford air travel.

The aviation sector is concerned that existing taxes and user charges on aviation involve cross‑subsidies. Some carriers support tax breaks for air transport to regional areas. International carriers argue that the passenger movement charge overcharges for the services actually provided.

The shipping sector argues that Australia's tax system reduces the competitiveness of Australian shipping. They advocate replacing the company tax for Australian shipping with a 'tonnage tax' and giving tax breaks to seafarers.

Some submissions argue that fuel excise should be automatically indexed to CPI so that the tax portion of fuel prices does not fall over time. Others consider that the 'tax on tax' or 'double taxation' is unfair, and that the GST on fuel or fuel excise should be removed.