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Petrol and diesel excise reduction.

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Acting Treasurer THE HON JOHN FAHEY MP

Number 60


Petrol and Diesel excise reduction

Acting Treasurer and Minister for Finance and Administration, the Hon John Fahey MP, today reiterated the Government’s expectation that the fuel industry pass on cost savings generated by tax reform, which are estimated to reduce the price of petrol and diesel by around 1.5 cents per litre (cpl).

"Today at least one major oil company has claimed that it will receive no cost savings as a result of tax reform and consequently motorists will have to accept a price rise at the bowser.

"This is false. Not only has Treasury modelling shown that there are significant cost savings to the petroleum industry as a result of tax reform, but economic modelling of both the Australian Trucking Association and the Australian Automobile Association found significant reductions in costs in that industry due to tax reform.

"I am sure that motoring associations, who claim to represent the interests of the motoring public, will agree with the Government that oil companies are obliged to pass on their tax-related cost savings and not attempt to reap a windfall gain at the expense of consumers," Mr Fahey said.

Mr Fahey said the 1.5 cpl cost reduction estimate for the petroleum industry was derived using Treasury’s Price Revenue Incidence Simulation Model (PRISMOD). PRISMOD is a highly disaggregated price input output model of the Australian economy, which tracks the impact of indirect tax changes on industry costs and prices.

All businesses will benefit from substantial cost savings through the removal of WST and other indirect taxes and will be able to claim an input tax credit for any GST paid.

Transport costs fall significantly. Fuel costs to business will fall by around 10 per cent, as GST paid by business is claimable as an input tax credit. Diesel falls by around 24 cents per litre under the Diesel and Alternative Fuel Grants Scheme. The cost of trucks and tyres also fall. These cost reductions apply from Day 1.

The petroleum industry also benefits from lower production costs through savings in chemicals, maintenance, plant and equipment, capital and running costs.

"The measures the Government has announced honour its commitment that petrol prices need not rise as a consequence of tax reform. Every Australian business is obliged to pass on the benefits of tax reform and oil companies are no different," Mr Fahey said.


CANBERRA 23 June 2000