Mr COMBET (Minister for Defence Personnel, Materiel and Science and Minister Assisting the Minister for Climate Change) (10:15 PM) —I move:

This bill seeks to amend the Excise Tariff Act 1921 to confirm in legislation the government’s commitment in the Carbon Pollution Reduction Scheme: Australia’s Low Pollution Future White Paper. The government will cut fuel taxes on a cent-for-cent basis to offset the initial price impact on fuel of introducing the Carbon Pollution Reduction Scheme.

The government recognises that people have limited flexibility to respond quickly to changes in fuel prices but that, over time, transport choices can respond to price changes. To give households and businesses time to adjust to the scheme, this legislation introduces a mechanism to automatically adjust the rate of fuel tax on all fuels that are currently subject to the 38.143c per litre rate of excise.

Fuel tax consists of excise duty on domestically manufactured fuels and excise equivalent customs duty on imported fuels. Fuel tax is predominantly applied at a rate of 38.143c per litre across the range of fuels, including petrol, diesel, kerosene, fuel oil, heating oil, biodiesel and fuel ethanol.

Different fuels emit different amounts of carbon when they burn and their prices will increase according to the volume of their emissions. To minimise compliance costs, the fuel tax cut will be made ‘across the board’ to currently taxed fuels. The fuel excise adjustment will be based on the expected rise in the price of diesel resulting from the introduction of the scheme. This will ensure there is cent-or-cent assistance for diesel users.

Diesel emits more carbon than petrol on a per litre basis, so the fuel tax cut will provide more than cent-for-cent assistance for petrol users, which make up the majority of motorists. However, diesel use is becoming more common as fuel and vehicle standards improve. Basing the fuel tax cut on diesel will therefore ensure that the government’s cent-for-cent commitment is delivered for the most common fuels used by households.

Any reductions will take place on 1 January and 1 July of each year, to harmonise with the business activity statement reporting period. The first fuel tax reduction will occur on 1 July 2011 with the commencement of the Carbon Pollution Reduction Scheme. On 1 July 2011, based on current taxation arrangements and that the emissions unit charge will be fixed at $10 per tonne, the fuel tax will be reduced by 2.455c per litre to 35.688c per litre.

After the fixed emission unit price of $10 per tonne lapses on 30 June 2012, the need for further reductions, and the amount, will be assessed based on the average Australian emissions unit auction charge over the preceding six-month period. If the average unit charge at the time of the assessment is greater than the average unit charge that formed the basis of the previous reduction, then the fuel tax rate will be further reduced. This approach will apply to adjustments that occur from 1 July 2012.

If the current average unit charge amount is less than the previous average unit charge amount then the rate of fuel tax will remain the same—the fuel tax rate will not be increased if the emissions charge has fallen. Information on the six-month average Australian emissions unit auction charge will be published by the Australian Climate Change Regulatory Authority in accordance with section 271 of the CPRS bill.

The final reduction will be made, if necessary, on 1 July 2014. The fuel tax rate at that date will be the ongoing rate—that is, the fuel tax rate will not revert to the 38.143c per litre rate. At this time the government will review the mechanism introduced by these amendments.

The amendments to the Excise Tariff Act will commence on 1 July 2011, assuming that the Carbon Pollution Reduction Scheme commences on that date.

Full details of the Excise Tariff Amendment (Carbon Pollution Reduction Scheme) Bill 2010 are contained in the explanatory memorandum. I commend the bill to the House.

Debate (on motion by Dr Southcott) adjourned.