Australia’s $10.8bn Diesel Tax Credit Under Fire as Fossil Fuel Subsidy

Canberra, Australia – The Australian government is facing increasing pressure to reassess its fuel tax credits scheme, a policy now widely criticized as the nation’s most significant anti-climate measure. This financial year, the scheme is projected to cost taxpayers nearly $10.8 billion, equating to $30 million per day, or $20,500 per minute.

What is the Fuel Tax Credits Scheme?

The fuel tax credits scheme refunds excise tax paid on fuel used in specific industries, including mining and agriculture, particularly for vehicles operating on private roads or for heavy machinery. While proponents argue the scheme ensures fairness by offsetting taxes paid by those not utilizing public roads, critics contend the rationale is increasingly tenuous.

The Scale of the Subsidy

The $10.8 billion cost dwarfs other government expenditures. It exceeds the budget allocated to the Australian Air Force and is more than double the amount spent on foreign aid. The financial outlay significantly surpasses funding for First Nations’ health initiatives.

A Fossil Fuel Subsidy?

The growing opposition stems from the scheme’s perceived role as a fossil fuel subsidy, actively working against Australia’s stated climate goals. The Albanese government has committed to reducing emissions by at least 62% by 2035, compared to 2005 levels, and achieving net zero emissions by 2050. Critics argue the fuel tax credits undermine these ambitions by incentivizing the continued use of polluting fuels. The Australia Institute has consistently highlighted the scheme’s drawbacks in annual reports.

The Logic Behind the Scheme Questioned

The scheme operates on the premise that fuel excise revenue is intended for road funding, and those operating primarily on private roads should be exempt. However, only approximately 5% of fuel excise revenue is explicitly allocated to road funding; the rest goes into general government revenue. This disconnect weakens the justification for the tax credits.

Calls for Reform

There is a growing chorus of voices advocating for reform or abolition of the scheme. Matt Kean, chair of the government’s Climate Change Authority, described the scheme as “insane,” suggesting the funds could be better used to support the transition to renewable energy and electric vehicles. The OECD has also called on the Australian government to “reduce or eliminate” exemptions for off-road vehicles and on-road heavy vehicles.

Who Supports Change?

Organizations supporting reform include the ACTU, the Labor Environmental Action Network, the Australian Academy of Technological Sciences and Engineering, and even Fortescue, a major beneficiary of the scheme. Proposals include capping rebates at $20 million or $50 million per company annually, with any excess funds directed towards emissions reduction initiatives.

Industry Response and Government Position

Mining industry groups are opposing changes and have threatened campaigns against the government if the tax break is unwound. Madeleine King, the federal resources minister, has indicated the government is not currently considering changes to the scheme.

The Financial Impact

Climate Energy Finance calculated that the top 15 diesel users burned nearly 6 billion litres and emitted 16.2 million tonnes of carbon dioxide in 2023-24, earning nearly $2.9 billion in credits. The scheme is one of the 20 biggest expenses in the budget, and its cost is rapidly increasing, projected to grow by 19.9% by mid-2029.