Senator the Hon Mathias Cormann
Minister for Finance
Date: Tuesday, 28 October 2014
WALEED ALY: This is about the fuel excise, the amount of tax that we pay just as an inherent part of the price of fuel really. The Government has wanted to increase the fuel excise which was frozen by the Howard Government all those years ago. It cost the Budget a lot of money. Problem is, in order to do that they needed the support of the Parliament. They needed to legislate it. Until now; the Government has come up with a way, given that it was running into road blocks really across the board, no one wanted anything to do with this. It has come up with a way to make the fuel excise increase anyway. It is going to do it through tariff increases. And they can just make this happen. There is a catch though. And that is that it needs parliamentary approval within 12 months if it is going to be legal and it is going to stick. If they can’t get that parliamentary approval, then what happens is that all that tax that they have collected as a result of the increased excise, all of that, has to be paid back, not to you and me as consumers of that fuel, but to the companies that most likely passed that cost onto us in the first place. Means they get a big windfall. The Opposition, I don’t think it is stretching it too far to say is pretty apoplectic about this. The Shadow Treasurer Chris Bowen said this:
CHRIS BOWEN (EXCERPT): This is an extraordinary attempt to ambush and blackmail the Parliament. And Mathias Cormann is actually saying and admitting and acknowledging that if the Parliament doesn’t eventually the petrol tax increase then the money will be refunded not to the motorist who paid that petrol tax increase, but to the oil companies, providing them with a windfall gain courtesy of Joe Hockey and Mathias Cormann. And that is an extraordinary piece of public policy.
WALEED ALY: The Finance Minister Mathias Cormann joins us now. Thank you so much for joining us.
MATHIAS CORMANN: Good evening. Good to be here.
WALEED ALY: Have you got a gun to the Parliament’s head on this?
MATHIAS CORMANN: Not at all. We are following a process that is available under the relevant legislation. It is a process the Labor party used before when they sought to increase the excise and the customs duty on ‘alcopops’. The situation was the exact same at the time. That legislation needed to be validated within 12 months. And if it hadn’t been validated, the money would have gone back to the distillers and big liquor.
WALEED ALY: Isn’t that effectively arguing two wrongs make a right?
MATHIAS CORMANN: No, what I am arguing is that this is a mechanism that is available to the Government of the day for good reason. And of course, we are very confident that within 12 months the Parliament will vote to validate and to support what is an important structural reform in the Budget.
WALEED ALY: Why should you be so confident that they will do that given that there has been very strong resistance to this whole idea from its inception?
MATHIAS CORMANN: We know for a fact that a number of Greens Senators are very supportive of the Budget measure that we have put forward here. You have got to remember that when fuel excise indexation was abolished in 2001, the value of the fuel excise as a proportion of average fuel prices at the pump was 42 per cent. As a result of inflation over that period it has eroded down to about 25 per cent now. What we have said in the Budget is that we wanted to ensure that the real value of the excise on fuel keeps pace with inflation, which is why we have said we would reintroduce regular indexation of fuel excise. Now a number of senior Labor figures and a number Green figures have come out actually saying that that is an important structural policy reform. Craig Emerson, a former senior Cabinet Minister in the Rudd and Gillard Governments, we know a number of people inside the Greens have actually said that this is an important reform, and we believe that this is an important reform. It will have a modest impact on households. The typical household, using about 50 litres of fuel a week, will pay about 40 cents additional on their fuel towards the end of this financial year. But of course it will have a significant impact on our capacity to grow a stronger, more prosperous economy on the back of the additional investment in productivity enhancing road infrastructure that it will help fund.
WALEED ALY: I understand you are arguing there effectively the merits of unfreezing the excise. There are as you say commentators across the spectrum that might agree with that. But this is now really become an argument about the method of doing that. Shouldn’t you be arguing the merits if you really believe that there are several Greens Senators who agree with you for example and this is an issue that the Greens might turn on in the space of 12 months. Shouldn’t you actually be having that discussion with them in order to get this through the Parliament sort of the normal way so that this sticks rather than there being this ticking clock that will go off in 12 months?
MATHIAS CORMANN: Well we are putting it through the Parliament in the normal way. We are putting it to the Parliament in the exact same way as Labor put the increase in the excise on ‘alcopops’ through about six years ago. The truth is what we have done today is give the Parliament another 12 months to consider the merits of what is an important structural reform, while protecting the revenue base for the Commonwealth in the meantime....interrupted
WALEED ALY: It’ll only enlarge the revenue base, that’s the whole point.
MATHIAS CORMANN: We’re protecting the revenue base, because at the moment the real value of the excise on fuel has continued to fall as inflation has eroded the real value of excise on fuel as I mentioned to you earlier. It was 42 per cent of the average fuel price at the pump in 2001, it’s now 25 per cent. If we don’t do what we are doing now, it will continue to fall and of course it would mean that we wouldn’t have the capacity to make the additional necessary investments in productivity enhancing infrastructure.
WALEED ALY: Did John Howard make a big mistake in doing this at the turn of the century?
MATHIAS CORMANN: 42 per cent was possibly too high, but we think that now that it has reached 25 per cent it is not appropriate for it to continue to fall and obviously we’ve made the judgment that it was important at this point to ensure that from here on in, the value of the excise on fuel keeps pace with inflation.
WALEED ALY: The end result of this, if you cannot get the Parliament to ratify this effectively within 12 months, the end result seems to be windfall to the fuel providers effectively rather than that money going back to consumers and that seems to me what you’ve warned throughout the day. Correct me if I’m wrong.
MATHIAS CORMANN: No, that’s exactly right.
WALEED ALY: Why does that have to be exactly right? Aren’t there mechanisms by which that money in the event that this isn’t ratified, could actually be returned to consumers?
MATHIAS CORMANN: Well it is very simple and it is the same situation as when Labor was in Government and they did the same through the excise on ‘alcopops’. The taxpayer for a fuel excise and the taxpayer for customs duty on fuel are respectively, the fuel manufacturers for the excise and the fuel importers for the customs duty. Obviously, if the measure that we have announced today is not validated by the Parliament within 12 months, then the money would go back to the taxpayer.
WALEED ALY: I understand that mechanism.
MATHIAS CORMANN: We obviously don’t want that to happen...interrupted
WALEED ALY: Sure.
MATHIAS CORMANN: But the truth is, earlier today Chris Bowen was asserting that it was all different when it came to ‘alcopops’ because he was trying to suggest that there was broad support for their measure. That is actually not true. The Senate in 2009 defeated the first attempt to validate the increase in excise on ‘alcopops’ and it was…interrupted
WALEED ALY: That’s slightly separate though to the question that I’m asking.
MATHIAS CORMANN: Well it’s not separate at all.
WALEED ALY: No, no because the question I’m asking isn’t really whether or not the ‘alcopops’ measure was popular or could get through the Senate. I’m talking about the mechanism for returning this to the customers. Now I understand that it’s fuel providers who will be paying this excise, but why is that so radically different from say the Carbon Tax, where it was energy users or carbon emitters that would pay that, but nonetheless, there have been attempts in fact, Clive Palmer guaranteed us that savings from the abolition of the Carbon Tax will be passed onto consumers, and the ACCC is there to ensure that?
MATHIAS CORMANN: It is totally different, and the reason I will just stay on the comparison with the alcopops tax measure for a moment, is because if that had not been validated at the time and it was validated literally on the last possible day, the money that was raised from that measure would have gone back to the distillers and to essentially the big alcohol suppliers. It would not have gone back to those who would have paid the additional excise over that period in relation to ‘alcopops’. The way the law works is that the taxpayer who has been responsible for paying the tax would get the refund. We don’t want that to happen, we think that the fuel excise indexation arrangements need to be put in place on an ongoing basis, an important structural reform. When it comes to the Carbon Tax, we went to the last election proposing to get rid of the Carbon Tax. We’ve delivered on that commitment, and as part of our pre-election platform, made a commitment that we would ensure that the flow on impact, the flow on benefit from getting rid of the Carbon Tax would flow through to households and to business.
WALEED ALY: So why can’t you do that here? If there’s a legislative issue, you can legislate? You can legislate to make sure that people get back the excise they have paid and it is probably not even that hard to track, particularly if people know that this could happen and they keep receipts?
MATHIAS CORMANN: The bit that you don’t seem to appreciate but I’m at pains to explain, is that our policy position in relation to the Carbon Tax was to repeal it. Our policy position in relation to fuel excise indexation arrangements is to reintroduce it. Now today, Labor is telling us that their position is not to support fuel excise indexation into the future. Well, let’s see what happens over the next 12 months. Bill Shorten also said he wouldn’t support our temporary Budget Repair Levy and then eventually, when it came to the crunch, he quietly voted in favour of it in the Senate. What we’re discussing is a hypothetical situation that I don’t believe will eventuate.
WALEED ALY: Well, no the hypothetical situation you raised today and you said this is the inevitable consequence of this, what I’m trying to understand is why that has to be inevitable. Just to clarify are you saying the real reason this can’t be paid back to consumers in the event that this isn’t ratified is really just a policy difference?
MATHIAS CORMANN: Firstly I didn’t raise it, I was asked the question and I answered the question the same way as I’m answering questions that you are putting to me.
WALEED ALY: Sure.
MATHIAS CORMANN: The second point is we’ve been entirely transparent in the Budget we put forward that we wanted to reintroduce regular indexation of fuel excise arrangements, because we think that the real value of the excise on fuel shouldn’t be allowed to continue to deteriorate beyond having already deteriorated from 42 per cent down to 25 per cent...
WALEED ALY: And for that reason if you happen to lose that argument in 12 months’ time, you are just going to give the windfall to the fuel providers even though there might be other mechanisms available to you to make sure that that could go back to the consumers.
MATHIAS CORMANN: There is no other mechanism available.
WALEED ALY: You can legislate it.
MATHIAS CORMANN: It is a statement of fact that under existing legislation if the Parliament were not to validate the indexation changes to the excise on fuel and the customs duty on fuel, then the money would go back to the tax payers who’ve paid it. We don’t want that to happen.
WALEED ALY: I know that but I’m asking you in that event you are not going to legislate to make it otherwise. To make it go back to the motorists simply because you don’t want the whole thing to be vetoed in 12 months’ time.
MATHIAS CORMANN: We don’t believe the whole thing will be vetoed in 12 months’ time. If Bill Shorten has an alternative position then he should explain what he would do in the scenario that you are describing. That is not a scenario that we are pursuing. We are pursuing the scenario where this important structural reform is here to stay over the medium to long term.
WALEED ALY: Okay. 23 minutes past 6, this is the voice of Mathias Cormann who is the Finance Minister. We were talking yesterday about the GST, it is a mature discussion that the Prime Minister has called on us to have. Do you have any preliminary views on whether it would be better for example to increase the rate as opposed to broaden the base of the GST?
MATHIAS CORMANN: My preliminary view is that we need to have a mature conversation about how we can make the Federation work better and how we can ensure that all levels of government have a sustainable revenue base from which to fund the important services that they provide. Now obviously, at the beginning of a process I’m not going to pre-empt what may come out at the end of the process. When it comes to the GST I can tell you two things. Firstly there will be no change to the GST at all unless all of the States want it. That is number one. Number two there will be no change to the GST or any other significant change to our tax system without taking it to another election as we promised in the lead up to the last election.
WALEED ALY: Just on the debate about the GST, can you conceive of a way or do you think it is a priority to conceive of a way if it is going to be increased in any way, to counter the regressive nature of it. That is are there any ways to make sure that it doesn’t have disproportionate impact on those on the lowest income.
MATHIAS CORMANN: You are asking me a hypothetical question. It is a very good try but I’m not going give you an answer.
WALEED ALY: I don’t think it is hypothetical. It is fairly straight forward.
MATHIAS CORMANN: Let me just remind you again. In the lead up to the last election we made it very clear that in this term of Parliament we are not going to make any changes to the GST full stop, end of story. We also said that we would pursue a tax white paper for a review process and engage in an open conversation with the Australian people about how best to improve our tax system moving forward. Our objective obviously is to have the lowest possible taxes in the most efficient possible tax system in order to fund the important and necessary services of government and we want to have a conversation about how the current tax arrangements can be improved moving forward. How we can ensure as part of improvements to the way the Federation operates, how we can ensure that all levels of government have a sustainable revenue base from which to fund their services. You’re trying to get me to pre-empt what the final recommendations …interrupted
WALEED ALY: I wasn’t doing that at all actually, I was actually just trying to be part of that mature conversation and ask whether or not it is possible to increase the GST in a way that’s not regressive.
Mathias Cormann are you there?
MATHIAS CORMANN: I’m here, I’ve dealt with that question. I’m not going to pre-empt the discussion that is going to take place.
WALEED ALY: Okay, sure. I just have a text from Mark in Canberra which raises an interesting question, I thought I’d put to you. It says forty cents a week increase for the average family using petrol but what about the flow on costs for goods for example that are transported that require petrol. Have you done any modelling on what the flow on costs for other goods would be?
MATHIAS CORMANN: Firstly, in relation to heavy vehicle users they are able to benefit from fuel tax credit arrangements and also off-road users benefit from fuel tax credit arrangements and what we’ve announced today is that those fuel tax credit arrangements will be adjusted to ensure that there is no negative financial impact on those businesses at all. In relation to those who use smaller trucks, like those that don’t qualify as heavy vehicle road users, they will of course pay the same fuel excise as the average consumer but that will increase the level of tax deduction they have available to them as a deduction in terms of business costs from their income.
WALEED ALY: Mathias Cormann it is always so much fun speaking to you. Thank you very much for joining us, I do appreciate it.
MATHIAS CORMANN: No worries, always good to be here.