Tax specialists have acknowledged that reintroducing the indexation of fuel excise will hurt smaller business owners who will find it harder to pass on costs to consumers and compete with their larger competitors.
The move, likely to be revealed in tomorrow’s budget, is thought to see the 38 cents a litre excise to be increased in line with inflation and raise about $2.4bn over four years.
Senior tax counsel at the Tax Institute, Robert Jeremenko, supported the reintroduction of the indexation of fuel excise because the tax take from fuel had been eroding over time.
He said the freeze in excise was currently costing the government about $5bn a year in lost revenue. However, he warned the reintroduction of the measure would mean additional pain for some business operators, including small businesses with high fuel costs.
“For businesses and small business who need to use fuel as an input cost to running that business, that’s going to flow on directly. For those who do a lot of kilometers, that one or two cents can become quite significant,” he told Dynamic Business.
“I feel that everyone, as the government has been saying, every sector of the business community and every type of taxpayer is going to be hit in this budget.”
The decision to freeze the excise was made back in 2001 by then prime minister John Howard amid a debate over the impact of the GST on petrol prices.
Senior tax adviser at the Institute of Public Accountants, Tony Greco, said that fuel costs fed straight into small business’ budgets. He said that reintroducing the indexation of fuel excise was a short term “nip and tuck” measure to improve the budget and would have an adverse impact on smaller operators.
“There’s been a lot of margin compression since the GFC, so every cost increase is unwanted,” he told Dynamic Business. “It is very much a small business sector concern when things like fuel excise are on the table… Indexation has stopped and it’s one of the areas the government is looking at in the short term to full some holes in the budget.
“We’d rather have a full scale tax review rather than the nips and tucks that have been rumoured. That’s where the tax review that’s been promised will address those bigger issues.
“We see these as short term measures and there will be some adverse impacts especially on small business.”
Mr Greco said that larger businesses would be better able to absorb increased fuel costs while smaller businesses would find it harder to pass on costs via price increases. He said smaller operators had been under considerable pressure from a range of factors including higher electricity prices.
Other business and industry groups have also warned about the impact of reintroducing fuel tax indexation. Chief executive of the Australian Industry Group, Innes Willox, has said that an increase in indexation should be accompanied by an equivalent increase in the diesel fuel rebate for businesses to ensure it did not amount to a tax on business inputs.