Joe Hockey (North Sydney, Liberal Party, Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

The government is determined to build a stronger and more prosperous economy and we are determined to repair the budget.

That is why we are continuing to calmly and methodically implement our budget measures over the last two budgets.

Today I am pleased to say that the government has successfully reached an agreement with the Labor Party to re-introduce the indexation of fuel excise to inflation.

Restoring the biannual indexation of fuel excise—first introduced by the Hawke Labor government—is a significant structural reform that will provide a stable and growing source of revenue.

All the revenue raised through this measure will be linked by law to funding roads.

It will provide a source of revenue to enable us to deliver our historic infrastructure growth package of over $50 billion—the biggest infrastructure spend in the history of the Commonwealth.

The agreement that has been reached today will see the Roads to Recovery program receive a further boost of $1.1 billion over the next two years—$300 million, in addition to our $350 million increase, in 2015-16 and $805 million increase in addition to the existing $350 million in 2016-17.

This funding builds on the additional $350 million provided under the program in the 2014-15 budget and brings total Road to Recovery funding to $3.2 billion over the five years to 2018-19.

This investment will go straight to local councils around the nation to upgrade and repair local roads according to their own priorities. Allocated funding will be distributed according to a formula based on population and road length set by the Local Governments Grants Commissions in each state and territory.

Payments go directly to councils and are made either on a reimbursement basis or based on the projected expenditure across the forward six months.

There are no shortages of good projects for the councils to fund. That is one of the reasons that next year we actually double the funding already. And under the Roads to Recovery program councils will have to demonstrate that they have not reduced their baseline funding allocation toward roads. I do not think that either the Labor Party or ourselves would want to see any reduction in road funding by councils and the substitution of this money for that.

Excise has applied to domestically produced petrol since 1929.

Indexation of excise was first introduced by the Hawke government in 1983 to ensure that excise continued to grow at the same rate as consumer prices, providing more stability to businesses and consumers.

From March 2001, the rate of excise was frozen at 38.143 cents per litre. This eroded the value of excise as a share of the price of fuel over time and, as a result, the real value of excise has decreased. If I may digress: I note that I was there at the time. It was in the wake of the introduction of the GST that the then Howard government decided not to continue with an increase in fuel excise with indexation with inflation. There were many good reasons for doing that at the time but, clearly, time has passed on.

The policy announced in the 2014 budget is for fuel excise to increase twice a year in February and August in line with movements of the Consumer Price Index.

Restoring this indexation is currently implemented by 12-month tariff proposals. These proposals took effect from 10 November 2014 and increased fuel excise from 38.143 cents per litre to 38.6 cents per litre. Fuel excise was then increased in line with Consumer Price Index to 38.9 cents per litre from 2 February 2015.

These two increases total less than a cent per litre and for a typical household consuming 50 litres of petrol a week, the estimated price impact of the indexation of fuel excise has been a modest 40 cents per week. And, of course, fuel prices have come down substantially since the budget announcement last year as a result of falling global oil prices.

While the impact on households has been modest, the impact on the budget is significant.

The indexation of fuel excise will raise approximately $3.6 billion over the five years to 2018-19 and over $23 billion over the next decade. The reintroduction of fuel excise indexation will provide a predictable and growing source of revenue, which will be used to continue to deliver the vital road infrastructure that Australia needs.

The bill will also establish the Fuel Indexation (Road Funding) Special Account.

This account will ensure that the net revenue raised through the reintroduction of fuel duty indexation is invested in road infrastructure through the states and the territories.

Importantly, this measure will not increase input costs for businesses using fuel in off-road operations or operating a vehicle with a gross vehicle mass in excess of 4.5 tonnes. This is because these businesses are able to receive fuel tax credits to offset the increased fuel excise paid.

Consequential amendments will also be made to the Excise Tariff Act 1921 in order to simplify the burden on businesses by rounding the applicable duty rate of indexed fuels from three decimal places of a cent to one decimal place. And that is a great step for small business. A lot of small business people raised with me that they had to enter a significant number of decimal places to comply with the requirements of the law. We are simplifying that.

This agreement is a further step that clearly indicates that we are listening to small business but also, at the same time, we are getting on with the job of budget repair.

Once again, I do want to thank the opposition for seeing common sense in relation to this matter. We welcome their newfound commitment to budget repair and we hope that it continues. Don't stop now; good things continue with a roll, and we would like to see more support for what is necessary to repair the budget. Full details of the bill are in the explanatory memorandum. Clearly, I think the parliament wants to deal with this as quickly as possible, and that is why I have moved that this bill be now read a second time.

Debate adjourned.

Leave granted for second reading debate to resume at a later hour this day.