FOR MEDIA 25 NOVEMBER 1991
Dr Hewson's consumption tax package raises a fundamental
question: is Dr Hewson serious about microeconomic reform
and achieving the fundamental changes he claims are so vital
for the Australian economy? If so why has he made no
allowance for road user charges in his calculations and
policy design?
Dr Hewson's package attempts to paint a picture of a new,
dynamic Australia where business has been freed from
supposed constraints and operates in a revamped environment
that promotes a vastly enhanced level of efficiency.
In Table 4.1 on page 33 of the summary document, Dr Hewrson
enthusiastically embraces the estimated benefits from
microeconomic reform prepared by the Industry Commission
( IC) and others. Here, and elsewhere, much is made of the
benefits from reform of transport. Indeed Dr Hewson becomes
quite lyrical about the importance of an efficient transport
system to Australia.
" If Australia is to compete effectively on world
markets it must not only deal sensibly with the
" tyranny of distance" between us and our overseas
markets. It must also deal sensibly with our very own
domestic " tyranny of distance". ( Supplementary
Paper 8, p. 1)
Dr Hewson's commitment is also quite specific and detailed:
" The incoming Coalition Government, therefore, will
request the newly established National Road Transport
Commission to review a national system of road user
charges to apply following the implementation of our
tax reform package. The Commission would be guided by
the need for the system of road user charges to be
equitable, efficient and simple to administer. The
Commission would be free to recommend that charges take
any form or combination of forms.
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These changes to the arrangements for road funding will
ensure that all revenue raised by user charges will be
spent on road maintenance and construction. The
overall level of road user charges and road
expenditures will be the responsibility of the National
Road Transport Commission. Charges and taxes on road
users and the level of expenditure on roads will no
longer be subject to the vagaries of the political or
budget processes which have produced wild fluctuations
in rates of charge and levels of expenditure in past
years." ( Main document, pp. 82-3)
The package specifically recognises the revenue implications
of the introduction of road user charges:
" The funding of road expenditure by road user charges
has the potential to improve the budgetary position of
the Commonwealth and to this extent the fully funded
proposal contained in this package is very
conservative." ( Supplementary Paper 8,
In fact the revenue raised under the system proposed in the
report on road user charges by the InterState Commission
( ISC) would be about $ 4 billion.
But when it comes to reccgnising that the imposition of
these charges has implications for the price of fuel, Dr
Hewson's document is strangely silent. Page 82 of the main
document contains the inaccurate excuse:
" At the present time the Federal Government and the
States are in this process of negotiating a new
approach to road funding. These negotiations are
however hampered by the Commonwealth reliance on fuel
excises as a source of general revenue and by the
increased reliance of the States on fuel-related
franchise fees as a milch cow for general revenue.
At the time of developing this proposal the final
nature and design of the new arrangements is unknown.
The Coalition therefore is not now in a position to
assess the adequacy or otherwise of the new road user
charges that are expected to be implemented next year
or beyond." 3243
3.
In f act a great deal of work has been done and pb2LJ~ C,
released by the ISC ( two reports) and the Premiers'
Conference Over-arching Group on Land Transport ( CAG). On
the basis of this work the Commonwealth and the States have
concluded an agreement covering the introduction of road
user charges for heavy vehicles and legislation-gñ izinn
Affect-to thin gareemnt wan Intoud in he erZ QflU
NnvpImb2Z. The details of this agreement, going to
mechanisms for setting and collecting these charges and to
their likely magnitude, were annoinnnd in the rnm~ imnique
from the Jtuly Rpecial PeMiersI Cofrnn and quifloti ng
documpntation. The details run to a number of pages but a
key paragraph demonstrates that road user charges on fuel
would be absorbed into the existing excise and not levied as
an extra charge:
" Registration charges and the road use charge component
of Commonwealth excise on diesel are to be adjusted in
future by the National Road Transport Commission in
line with the amount of national road system costs
attributable to heavy vehicles. Accordingly, State
fuel franchise fees and the taxation component of
Commonwealth diesel excise are to be separately
identified and adjusted in future by separate
mechanisms." ( July communique,
Dr Hewson chose to ignore this wealth of material that could
have provided an entirely satisfactory basis for factoring
road user charges into his calculations.
Why? Could it be that the conclusions of such an analysiLs are
unpalatable and unacceptable to the National Party?
The impact on his calculations and claims are certainly
dramatic and far reaching. Let me illustrate.
The work by the ISC and the OAG, referred to earlier,
concludes that an element relating purely to distance
travelled is essential in any system of road user charges
and that the only effective and efficient way to achieve
this is through a charge on fuel. Their work suggested that
a charge of around 16c a litre would be required on both
diesel and petrol.
With such charges in place, Dr Hewson's maximum scope for
reduction of the then remaining petrol and diesel excises is
9.8c a litre. This would be the maximum fall in fuel prices
he could offer business users. Private motorists are
subject to the 15 per cent consumption tax, estimated at 7c
a litre in Dr Hewson's document, and, therefore, would see
falls of no more than 2-3c a litre.
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4.
The savings for the average family that Dr iHewson makes so
much of would be reduced from $ 11.40 for a 60 litre tank of
petrol to $ 1.20-1.80, a dramatically different story the
sort of savings that can be made in periods of petrol price
discounting. The savings in business costs flowing from reductions in
fuel prices that he refers to repeatedly throughout the
document would be cut by about two thirds.
Dr Hewson's CPI calculation would require significant
correction. The removal of 16c from the proposed reduction
of 25.8c in the excise on a litre of fuel cuts the 1.3
percentage point price level reduction from this source
( reported in Table 8.1 on page~ 134 of the main document) to
percentage points. Hence, on Dr Hewson's own figures,
the impact of the package on the CPI is not an increase of
4.7 per cent but an increase of 5.5 per cent, with obvious
implications for the adequacy of the so-called compensation
package. Will Dr Hewson fall at the first hurdle of microeconomic
reform because of the National Party veto?
Which do we take seriously, Or Hewson's vision for a more
efficient Australia based on a Government prepared to take
tough decisions or the calculations and assertions about the
impact of the package in Dr Hewson's " carefully prepared"
document? 3245