Is indexation of fuel excise good policy?

The equity impact of individual policies shouldn't be judged solely in isolation; the overall equity effect of the entire tax-transfer system is what needs to be considered. But even on a narrow view, there's a number of other points that need to be taken in to account.

• Equity concerns relate primarily to the level of the excise on petrol (38.1 cents per litre at present); the current initiative relates only to maintaining that level in real terms. Neither Labor nor the Greens oppose the concept of taxing petrol; they don't oppose the level of the tax either.
• Taxes on motor fuel are already extraordinarily low in Australiacompared to other OECD countries.
• Just as the fuel excise will increase by CPI, so too will the incomes of motorists. Salaries, wages, pensions and transfer payments will generally increase at, or in many cases above, the CPI.
• Lower income drivers can be protected from income effects just as eligible public transport travellers are protected by concession fares. The Grattan Institute says the poorest 20% of households could be compensated for indexation of the fuel excise if just 8% of the additional revenue raised were returned to them through the tax-transfer system.

Indexation is as obviously sensible today as it was when Bob Hawke introduced it in 1983. As Richard Dennis has explained, it was also sensible on those occasions in the recent past when the Greens called for its reintroduction.

Back in 2006, the Greens included the abolition of fuel tax indexation on their list of the top ten budget mistakes made by John Howard. Indeed, they rated it number 1. In 2006, they also called for the reintroduction of fuel tax indexation to fund a climate disaster fund. And in 2010, they had the reintroduction costed by the Parliamentary Budget Office (PBO) as part of their election platform.

Labor and the Greens should send a signal to the electorate that essentially administrative policies like indexation should be above political opportunism.