I’m a bit late joining the pile-on to Joe Hockey for his silly claim that poor people won’t be hit by fuel excise because they don’t drive (or not as much). Obviously, that’s true of just about every tax you can think of: poor people, earn less, spend less and therefore pay less tax. The big question, as the Australia Institute and others have pointed out, is how much people pay as a proportion of income. Food and fuel represent a larger than average share of spending for low-income households, so taxes on these items are more regressive than broad-based consumption taxes like the GST which in turn are regressive compared to income tax.
But there’s a more fundamental problem with the ABS Household Expenditure survey data cited by Hockey to defend his claim. In the tables he used, the ABS sorts households by income, with no adjustment for the number of people in the household (the ABS also provides “equivalised” figures, which adjust for household size). To quote the ABS
This difference in expenditure is partly a consequence of household size: households in the lowest quintile contain on average 1.5 persons, compared to 3.4 persons in households in the highest quintile. Lone person households make up 63% of households in the lowest quintile.
This makes a big difference to the figures quoted by Hockey, that top-quintile households spend $53 a week on fuel, and bottom quintile households only $16.
Comparing expenditure per person, the top quintile spends $16 per person and the bottom quintile $11 – a very small difference. Of course, the income figures need adjusting also, but here the difference remains huge. Income per person in the top quintile is about 5 times that in the bottom. And Hockey’s argument would look even worse if the ABS sorted households by income.
This is the kind of mistake that’s easy enough for an individual politician to make, but Hockey has the entire resources of the Treasury at his disposal. If he’d asked them before making his bizarre claim, I’m sure Treasury officials would have warned him off. As it is, they have had to provide him with the statistics most favorable to his claim and watch him get shot down.
Still, it was good enough to fool Andrew Bolt.
The fact that a fuel tax is regressive does not mean that a return to indexation of the fuel excise is necessarily bad. There are good reasons for taxing fuel, and no sensible rationale for allowing the tax to be eroded by inflation. But fuel taxes bear most on the poor, so they need to be put in the context of a budget that it is progressive in total. That’s the exact opposite of what Hockey is doing.
John Quiggin 
Is there good information on the changes made by the Abbott Govt to Treasury/Finance officials?
As al regressive taxes do. Especially those on what can be considered essentials for daily livng.
I thought the comment made by Ross Gittins that the budget was full of the unadulterated doozies that finance and treasury always put forward but are usually, for good reason, rejected by anyone with an ounce of common sense or instinct for political survival.
Is Joe Hockey really this dense or is there something else out work?
> Is Joe Hockey really this dense or is there something else out work?
He’s really well educated. That is, the people who educated him did a really good job of it, given the limitations of the material they had to work with. In strict mental-processing-power terms Abbott’s probably better equipped, but Abbott never read the user manual for his brain and Hockey did. Cover to cover. He’s that kinda guy.
Long and the short of it is, Hockey’s the only one who can make mistakes this sophisticated.
I have a friend who ran an NGO that had to deal with Hockey’s department at the time. As a result he has met the man himself. According to this friend, most emphatically yes, Hockey really is that dense.
Good thing he’s displaying it before he has a chance at Prime Minister.
Not all taxes need be progressive. What matters is the overall incidence of the tax transfer system. The main case for indexing the petrol excise is as an imperfect surrogate for congestion and pollution taxes and to encourage a switch away from petrol. Yes, as you say there are arguments for indexation.
My understanding is that the demand for cars is income elastic (cars are a luxury good) but that the demand for petrol is almost independent of income. “Poor” people buy very cheap cars (or none at all) but if they do buy cars these are fuel inefficient. Also the “poor” live on the city periphery where public transport services are poor so they drive a lot.
The stupidity of Labor and the Greens here is to reject every part of the budget for populist political reasons. They should pass the fuel excise hike immediately. The Greens are a menace when it comes to thinking about the economics of the environment. We would have a settled carbon tax policy now if it were not for these clots.
In the article in the Guardian about this, Hockey was also quoted as saying that the (value of) entire tax paid by some households went to pay the family benefits of other households.
AFAIK, there are four main reasons for income redistribution: support families with costs of children, support people with illness/disability, support people in their old age, and support people during unemployment. The rationale is that these are either normal life stages when people need additional support, or misfortunes that can happen to any of us, so we share the costs to the extent we can afford.
Taken in conjunction with Hockey’s earlier remarks about ‘lifters and leaners’, it seems that he does not accept the idea of any income redistribution. I think that Hockey – and the government perhaps – wants to move us right away from the social democratic contract to a fully privatised economy (as opposed to society). I don’t think it’s what Australians in general want, but my fear is that the stuff Hockey is saying is ambit claims, by which he/they hope to gradually move us all to the right. The trouble is I think it’s working, but maybe, if we’re lucky, they’ll just try to push us all too far, and people will start really seeing through them and seriously pushing back.
The other thing that is interesting – and frightening – about Hockey’s apparent position is that it is totally static, and completely ungenerous.
There is no sense of change, no sense of ‘I help you today, you help me tomorrow’, or ‘I’ve been lucky, let me share my good fortune with you’. It’s all about a permanent fixed sense of grievance – someone (the wealthier person) is always getting ripped of, and someone (the poorer person) is always getting something for nothing. It’s an awful, fixed, mean view of the world.
I’m really warming to the pleasure of watching these turkeys go down. This is fun. Hockey is a real old school ruling class bully, a know nothing who is every day exposed as a political nincompoop. Good times.
I would guess hc at #6 has access to effective public transport, cars are not a luxury item in the sticks, expensive cars may be, this also links in the a flexible workforce able to work 24/7 and the punitive approach to Newstart Allowance and the Disability Support Pension.
I presume that Hockey’s “leaners” are the idle rich.
And hc is right, the fuel excise should be passed.
@hc
For the record I support the re-indexing of petrol, but this government and it’s budget are unsalvageable and they got into government with an unusually sinister campaign. Why cut deals with these losers when they clearly look on the road to a one term stint.
Problems with your eyesight Paul? Look at my last sentence in para 2.
@John Brookes
Why ever would you think Hockey’s ‘leaners’ are the idle rich? Seems pretty clear he’s referring to anyone who receives a net benefit from individual tax transfer arrangements – in particular people who are poor or unemployed.
(of course pensioners, children, women having babies, parents who work part time and people with disabilities all tend to receive a net benefit too, but I think Hockey isn’t smart enough to understand the implications of that)
But not of course fossil fuel and mining company owners who benefit from government subsidy.
The Greens have been strangely, and disappointingly, quiet lately.
As if to confirm my suspicion that they have become nothing but a limp appendage of the ALP ‘left’ wishing to become junior partners in an ALP/Green coalition, here is Bandt’s media release:
Just when someone might hope for a serious point made strongly, about for example the hidden costs of urban sprawl on the lower income brackets or the urgent need for free or affordable public transport etc.., we get pointless puffery with a dash of cheap humor thrown in.
What happened to the Greens?
Yes of course Hockey’s stupidity is the Greens’ fault … and independent parties do really well when they pass regressive fiscal policy for the Liberals, as the Democrats showed when Lees passed the GST … oh, wait? Where are they again?
Bandt’s second paragraph makes the point others here have been making, that the petrol excise can’t be seen independently of the whole economy. Furthermore, if you want a green tax on petrol, then pass one for that purpose. Don’t try and slip one through the back door of an indexation policy and hope it gets the job done. The Greens aren’t so stupid as to fall for such weak sauce. They forced the previous government to pass this thing called a price on carbon, which was beginning to work for its intended purpose until Abbott took over – why would they try and slip through a second-rate and limited tax on a single source of carbon, at the expense of Australia’s poorest people and their own political future? Pyrrhic victory, much?
To be fair, Hockey declared himself as mean spirited and small minded in 2012: http://www.theage.com.au/national/the-end-of-the-age-of-entitlement-20120419-1x8vj.html
@faustusnotes
You’ve got it.
The Greens are doing to themselves, via the ALP, what the Democrats did to themselves, via the LNP.
In both cases they thought they could sell out their solid base but achieve some kind of policy greatness.
Nick Clegg did the same thing, via Cameron.
The Greens were constantly, but gradually, increasing their electoral appeal by solidly holding to a social-democratic/environment core of principles. They look to have sold that out for some perceived expediency. My suspicion is that this will doom them electorally – and that, just like Gareth Evans and Cheryl Kernot, it will not have been by accident but rather by design.
This is more like ‘ALP’ talking point than anything Bob Brown would have uttered:
From the Greens???
Despite trying to shift the blame onto the Greens yes, Hockey is that dense.
At one point I thought that Abbott had cleverly handed Hockey a dud budget to diminish his profile thereby eliminating a future contender for the top job. Now there is solid evidence that Hockey doesn’t need any help in that dept.
@Michael
When I read that I thought ‘I bet Treasury and Finance just got all their worse ideas out, because they knew these idiots wouldn’t know the difference and it would ensure they wouldn’t have to work for them for very long’.
I am a little conflicted on fuel taxes. On the one hand, I want to see all fossil fuel subsidies stopped and a carbon tax on fossil fuels. On the other hand, I would not want to hit the poor and rural communities. How could it be done?
Maybe remove fuel subsidies, add a carbon tax and remove GST from all food and grocery essentials (whilst keeping the GST on junk food which could be accurately defined as confectionary, soft drinks, snack food and fast food). Also, increase mass transit services and lower fares. Farmers would probably need further compensation for equity reasons and maybe even pragmatic poltical reasons. I am not sure what form this could take. Perhaps a Commonwealth Rural Bank, government owned, that would refinance individual farmers (not agri-corporations) in finacial straits but still assessed as viable. A deal like 0% interest for five years and the offical cash rate (currently 2.5%) as interest after that would fair IMO.
The awkward fact seems to be that farmers, truckers and suburban battlers will need hydrocarbon fuelled transport for the foreseeable future. Electric cars are for those with spare cash and short commutes. Perhaps miners should pay the full diesel excise with some kind of adjustment to state royalties or federal company tax.
By now I think Australia will be importing over 60% of its oil needs some of it as refined fuel from Singapore. We’re paying for that with other carbon exports like coal and LNG. It has been claimed that makes us a bigger carbon exporter than Saudi Arabia . Perhaps we should have more natural gas powered vehicles. For example in the US Chevrolet have a petrol/ compressed gas bifuel vehicle starting at $38k. Were we to reduce the excise in Australia there would be less incentive to come up with petrol alternatives, at least for ‘distance’ vehicles.
@hc
I’m rather curious about your last paragraph at #6. Are you claiming that the Greens were mistaken for political (passing a Rudd ETS early was the best bet to ensure a future Abbott government would find it nigh impossible to repeal) or policy (that the Rudd ETS was better than the Gillard version) reasons?
Or some knucklehead in his office, whose only qualification is Liberal Party activism at university, looked up the statistics and not knowing any better gave them to him.
Megan, I was being sarcastic. If you think the Greens would improve their electoral appeal by passing the fuel excise, you’re not really very in touch with the people who vote for them. If you think the Greens can achieve their carbon reduction goals through a weak price signal on carbon like the excise, you’re really setting a low bar for what we need to achieve in carbon reduction over the next 30 years.
The Greens need to stick to their guns, and ensure that carbon pricing only gets implemented in conjunction with a proper compensation package, and doesn’t get done slyly through things like fuel excise increases. In fact, in a proper carbon policy, fuel excise and subsidies won’t exist – there will be a single instrument on all carbon-intensive products that is intended to strongly discourage their use. Fiddling with excises because you can’t get the real effective policy through parliament is a cheap alternative that won’t work, and people here who are hoping to get some minimal carbon reduction benefits at the expense of the poor by supporting Hockey’s regressive policies are simply a) going to fail to achieve meaningful carbon goals and b) reinforce the prejudice that green ideals are a fantasy of the inner-urban “elite”.
@faustusnotes
By and large correct FN. There are a couple of other measures I’d like to see in a package (which I won’t reiterate because I’ve raised them before) but your key claim expressed in the opening sentence of para 2 above is right.
@hc: while I generally agree with your argument, and while I’m not overfond of the Greens’ political strategy, I’m not sure what the ‘We would have a settled carbon tax policy now if it were not for these clots’ means: if you’re saying that the Greens shouldn’t have insisted on a three-year fixed price regime for the Gillard ETS so that it couldn’t be construed as a broken promise, then OK, I can understand, but then that’s not really a carbon tax policy in the commonly understood sense.
If you’re saying that they should have supported the Rudd ETS, then yes, perhaps, but the Greens didn’t have balance of power in the Senate until July 2011, well after the Rudd ETS had been shelved. Senators Xenaphon and Fielding held the balance of power under Rudd, and they were both opposed to the ETS—the Greens’ support, though I agree they should have offered it, wouldn’t have made any difference to the Senate numbers.
@Ikonoclast
Not much mention has been made in the MSM about the 12c/L fuel excise rebate for heavy vehicles using public roads (eg. supermarket trucks, road trains, freight trucks). That particular subsidy does not hold up to the “We don’t use the roads!” argument employed by miners and farmers in response to the threat of removing the excise rebate.
@faustusnotes
“In fact, in a proper carbon policy, fuel excise and subsidies won’t exist – there will be a single instrument on all carbon-intensive products that is intended to strongly discourage their use.”
Fuel excises are there to help pay for the cost of building and maintaining roads, not discourage carbon emissions. I’m not sure how they could be replaced by a ‘single instrument on carbon emissions’.
Personally, I’d like to see state-based yearly rego costs tied to CO2/km. Similar to what Qld has already with rego costs based on cylinder-count.
$4-500 more in one hit to drive a V8 or inefficient V6 sends a much stronger price signal than a few measly dollars every time you fill up. And there’s already a concession mechanism in place for health care card holders.
@Nick
I like the idea of abolishing the excises and taxes on fuel altogether along with CTP and rego.
In their place there should be a road user charge based on TARE along with its potential fully laden weight, tailpipe emissions, the space taken up by the vehicle, the driving profile of the road user, the risk of injury presented by that user and that vehicle, the existence/absence of parallel transport corridors and the contention on a given road at the time of day.
An onboard transponder and metre would allow the user to view his or her bill for the road usage.
That way, the marginal cost of using the vehicle would be at the forefront of the road user’s mind.
Funds raised in this way could be hypothecated to road maintenance, quality housing and public transport in the areas where the funds were raised.
HC
LOL … This old zombie just keeps getting resurrected.
I don’t think increases in fuel excise are what everyone was thinking when we heard the ”I mean, this country ought to be an affordable energy superpower.” Isn’t that the reason for scraping the carbon tax so energy would be cheaper? Or is it that they don’t mind everyone paying just not their rich friends.
Updated Oxford dictionary in light of the Abbott government:
To do a Hockey – to make factually correct statement for misleading purpose or in incorrect context.
To do an Abetz – to blatantly blame others for one’s own embarrassing mistake. Example: My son forgot to do his assignment so he Abetzed and told his teacher that the dog ate his USB.
To do a Brandis – to grossly under-prepare when doing one’s job, especially in public. Example: I had presentation this morning but I totally Brandis-ed it because I went to a party last night.
To do an O’Farrell – to conveniently fail to remember or appreciate a substantial gift from friend.
To do a Bishop – take advantage of something which one has previously vehemently denounced.
To do an Abbot- to mislead someone in order to curry favor. Example: On my first date she said she was a vegan, so I abbotted her and said I don’t eat meat either.
A carbon price of $24.50 per tonne of CO2 works out to 6.4c per litre on petrol. That’s since petrol burns mainly to water vapour and 2.5 kg of CO2. Hence the claim that 38.1c per litre petrol fuel excise is ‘carbon tax on steroids’. When Qantas grizzled about ‘carbon tax’ on jet fuel that referred to a new 5.8c per litre component of the jet fuel excise which I believe was 9.8c of which 3.6c was earmarked to fund the aviation safety authority CASA.
If we were to have an emissions cap based approach like an ETS then transport fuels should have a carbon price component in addition to pure excise. The coverage would include petrol, diesel, jet fuel, avgas, compressed natural gas and ship fuel. It would mean if you fly or drive more then there would be less coal fired electricity available to stay under the CO2 cap. I think it is the correct way to go in theory just that in practice (eg the EU ETS) they seem to stuff it up.
Nick, if we’re going to deal seriously with the economic and social changes required to prevent a carbon catastrophe, we’re going to need to build and maintain a lot less roads, so not having the excise could be good. But having said that, I think it’s perfectly fine to add additional taxes to fuel if you think that’s the best way of funding things, but don’t pretend that they’re intended as a price signal on carbon (as others here are suggesting we should do).
Hermit’s point about how pathetic the price signal due to a $25 carbon tax is, should make us stop and wonder how exactly we are going to get to carbon zero with just a price. I have said here before, it’s not going to be enough. Even hideously punitive taxes in conjunction with broadscale bans, huge advertising restrictions, and sales restrictions, have not caused cigarette smoking to end over 30 years of gradually ratcheting them up. If we want to send that price signal on carbon, we’re going to need a much more serious price than $25 a tonne, and we’re going to need a lot of additional measures.
This is a fact that economists don’t seem to be able to get their heads around. We aren’t going to stave off serious global warming damage with paltry measures like this. We need a revolution in social organization, starting with renewable energy and very rapidly extending to transport. No government on earth is serious about what needs to be done; we are going to roast this planet while we bicker about paltry taxes and fuel excises.
@faustusnotes
We’d better start hoping that the crank Maurice Newman’s belief in an imminent solar minimum is partially true.
I would really like to see some of the positive people on here who are sure that a carbon tax alone will work give me some idea of how a carbon tax will get us to zero carbon by itself. Bearing in mind that there are some industries (like jet travel) that are very, very far from being able to be carbon free, and will require offsets. So somehow this carbon tax has to produce not just a complete transformation to carbon free power, ground and sea transport, but has to also be able to offset the use of coke in steel milling, and jet fuel, for at least the medium term.
That’s a huge goal. And apparently increasing hte price of petrol by 6c a litre is going to do it.
IMO a 1970s type fuel panic could happen before 2020. Despite turmoil in Iraq, Libya, Russia and Nigeria the oil traders have decided not to blink. That may be because the last oil price surge in 2008 accompanied the GFC. A contributing factor to the present nonchalance could be quiet optimism over the success of fracking in the US. Current US domestic oil production is back to 1986 levels and Obama is leaving the decision on the full scale tar sands pipeline from Canada to his successor.
Some predict the fracking miracle will nosedive after 2018. Climate dramas (eg Hoover Dam drying up) may cause carbon and the likes of tar sands to be demonised. Then again Maurice Newman could be right and we should worry about the next Ice Age. Recalling 2008 the oil price may be contained just the number of barrels will be a lot less. Back to odd and even number plates or ration cards for petrol with no need for carbon pricing.
When’s the $US30 a barrel of oil due to kick in as Rupert promised after Saddam was knocked off ?
That doesn’t make a lot of sense. Obviously if the price was kept artifically low a la 1973, there would be a shortage that would probably necessitate rationing. But if the price is contained by reduced demand, as in 2008, why would rationing be required?
My difficulty with Joe Hockey’s comments is that he was using them as justification for statements (by Hockey) that the Budget is fair. With a moment of thinking about the ABS statistics he used as evidence, Joe Hockey would surely have understood why it is a poor, if not outright invalid and/or irrelevant, data set to present as supporting his fairness claim. As the Treasurer in the current government, he should be able to do much better than this, or he is not the person for the role of Treasurer.
Does anyone remember the hapless John Kerin who got caught out by the media for (momentarily) not knowing what the technical acronym GOS stood for?
As Tim Colebatch’s take on it shows, this is what happens if a blunder like becomes a media sh*tstorm:
Politics is not life-and-death, it’s much more serious than that 🙂
My problem with Hockey’s statement about the poor was the revealing way he said it. He uttered the word “poor” with smug and superior contempt. It was as if the existence of poor people who can be despised and swept aside was utterly normal to him. He clearly sees it as the correct order of things. In fact, Australia is plenty rich enough to have no poor. Any treasurer who fails to see this and fails to take real action is utterly contemptible. By this proper and correct measure, we probably have never had a good treasurer.
My initial comments above should not be misconstrued as “blaming the Greens” for anything to do with carbon emissions.
My criticism of the Greens (and Bandt’s press release) was primarily linked to the topic at hand, ie: what Hockey said.
So Hockey has now issued a faux-apology – sorry he ‘hurt’ people’s feelings, doesn’t acknowledge the failure of analysis.
@Fran Barlow Fran, Thanks, you have clarified the issue for me.
@faustusnotes
“Hermit’s point about how pathetic the price signal due to a $25 carbon tax is, should make us stop and wonder how exactly we are going to get to carbon zero with just a price.”
The studies I’ve seen (linked to at Brian’s blog recently) showed something like a 1-3% reduction in overall fuel use for a carbon price of $30/tonne. So, no – not nearly strong enough to achieve significant reductions.
Having to pay $1200 a year rego, on the other hand, for a car that emits 240g/km, instead of say $600 for a car that emits 120g/km – sends a much stronger price signal.
It works out to the dollar equivalent of a carbon tax of about $200/tonne. Importantly, though, I think people would much more readily accept the change. If Qld of all states can already do it in a similar fashion…
It rewards people for choosing (or having already chosen) more fuel-efficient new and second-hand cars. Their rego costs would drop from what they are now. That makes it’s politically appealing.
Fran, a complete system overhaul like that sounds fine to me in principle, but it’s a big jump from what we have now. I think it’d be a lot more difficult to educate people on beforehand, and show exactly what they stand to save/have to spend extra as a result of the change.
Plus CO2/km largely accounts for things like kerb weight/body size/oversized engines ? increased driving risk anyway.
@Tim Macknay
We’d be better served believing in the Flying Spaghetti Monster.
The British experience from memory is that their climate price correlated with a period of offshoring of manufacturing and increase in imports – if you account for carbon emissions by consumption rather than production their emissions didn’t go down. There was a Quarterly Essay that stated this was the case for the EU generally.
Accounting for emissions by production generally makes wealthy consumer countries look better to the detriment of manufacturing/tourist countries where emissions are produced for other nationalities’ consumption.
There is pretty much no solution for air travel apart from conservation (not flying).
The other physical solutions would need comprehensive implementation – reconfiguring goods production and consumption, food production and consumption, transport networks, waste management, moving land use away from pasteur to reforestation to draw down emissions etc. I myself cannot see how a tax will get all this done, because it entails a comprehensive reorientation of our economy (if that means systems of production, consumption, transport and related externalities) that the economic modelling does not seem to engage with at all.
From what I’ve heard, in Australia stationary energy is the easiest transformation – transport, food, and land use are more difficult. I have heard that reforestation might not draw down sufficient ghg and that geo-engineering might be countenanced. But I think that was 17% reforestation, so I think we can just reforest extra through more efficient land use and not countenance geoengineering.
Poorer countries may not have even the scanty resources we have devoted to devote to this great issue – for example, I have heard Vietnam looks like it might struggle with generating sufficient stationary energy from renewable sources, but the data is not fully there , so maybe it is more likely to have enough renewable resources than it seems?