Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 2 - Regulation impact statement
Policy objective
2.1 In recognition of public concern about petrol prices, a package of Government measures to cut petrol and diesel fuel excise was announced by the Prime Minister on 1 March 2001.
2.2 As part of the package, the Prime Minister announced that legislation would be introduced in the Parliament as soon as possible to abolish indexation of excise and customs duty for all petroleum fuels - that is, leaded and unleaded petrol, diesel, aviation fuels and burner fuels (fuels for use otherwise than in an internal combustion engine).
Implementation options
2.3 Automatic indexation of rates of excise and customs duty is provided for in specific provisions of the Excise Tariff Act 1921 and the Customs Tariff Act 1995 . It applies, with some exceptions, to all excisable alcohol, tobacco and refined petroleum products that attract a duty rate other than free, and excise equivalent imported goods attracting customs duty.
2.4 As the change announced by the Government requires alteration to Excise and Customs legislation, other options were not applicable.
Assessment of impacts
2.5 The abolition of petroleum fuels indexation is expected to affect petroleum manufacturers, importers and licensed distributors, business users of petroleum fuels, and individual non-business consumers.
2.6 There may be a reduction in ongoing compliance costs for petroleum manufacturers, importers and licensed distributors (numbering around 30), as less frequent changes will be needed to their systems to cater for new duty rates. This reduction is likely to be minor, given that the procedures and systems these businesses have in place were designed to handle the regular indexation changes with minimal effort.
2.7 There will be very little impact on the administrative costs for the Australian Taxation Office and Australian Customs Service, as rates of duty for other excisable and excise equivalent imported goods, such as alcohol and tobacco products, will continue to be subject to the automatic indexation provisions.
2.8 The cost to the Budget of the abolition of excise and customs duty indexation for petroleum fuels is $150 million in 2001-2002, $425 million in 2002-2003, $785 million in 2003-2004 and $1,135 million in 2004-2005.
2.9 Retail prices of fuels used by individual non-business consumers, for example, petrol and home heating oil, should in the future be lower than they otherwise would be, had indexation not been abolished. This could affect consumption patterns.
2.10 Industries that use duty-paid petroleum fuels as inputs to production, including the aviation and transportation industries, should benefit from lower costs than would otherwise be the case. The extent of the impact across industry sectors and for individual operators will vary. Lower input costs could result in lower retail prices for products and could affect consumption patterns.
2.11 As the price of petroleum products is a factor in determining the consumer price index, there could be an effect on inflation rates.
2.12 Prior public consultation was not appropriate on this matter as advance release of details of the proposed change would likely have compromised the Prime Ministers announcement.
Conclusion and recommended option
2.13 The abolition of indexation of excise and customs duty for petroleum fuels is one of a package of Government measures announced on 1 March 2001 to cut petrol and diesel fuel excise. As indexation of duty rates is a legislated mechanism, only amendments to Excise and Customs legislation can give effect to the Governments decision.