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Adam Bandt says the fossil fuel industry receives $10b in federal subsidies a year. Is that correct?

Leader of the Greens Adam Bandt says the fossil fuel industry receives $10 billion in handouts from the federal government a year. (ABC News: Nick Haggarty)

The claim

In an election where demand for climate action has seen independents threaten to take prized Coalition seats, the Greens have repeated calls to ditch federal spending on fossil fuels.

During an interview with ABC's Insiders on May 1, 2022, Greens Leader Adam Bandt said "increasingly, people are realising we're giving $10 billion a year in handouts to big coal and gas corporations and the fossil fuel industry to make the problem worse".

The claim is repeated on his website, with the Greens pledging to stop "the massive subsidies to big coal, oil and gas corporations — over $10b each year".

So, does the fossil fuel industry receive more than $10 billion per year in federal government subsidies?

RMIT ABC Fact Check investigates.

The verdict

Mr Bandt's claim is overblown.

A document provided by his office to Fact Check attributed the vast majority of this figure to the cost of the government's fuel tax credits scheme.

There is some debate as to whether the credits represent a subsidy. But on any view it is a stretch to say that all the benefits of the scheme flow to the fossil fuel industry.

Broadly, the scheme reimburses businesses for the cost of fuel tax (paid at the pump) when that fuel is used for heavy vehicles, heavy machinery and equipment, or for light vehicles not travelling on public roads.

Importantly, fuel tax credits are paid to consumers. 

That means that while these refunds may lead to increased fossil fuel sales, the benefits of the scheme are shared between fuel producers and consumers.

In many cases the consumer is also a fuel producer.

At the last count, more than 14 per cent of credits went to coal mining companies. A similar amount went to a range of industries from financial and insurance services to construction and public administration and safety.

Other measures mentioned by Mr Bandt's office are more likely to pass muster as subsidies, including tax breaks offered to the coal mining, oil and gas industries allowing them to bring forward depreciation of assets or claim immediate deductions for exploration expenses.

However, the cost to the budget of these measures is much smaller than the fuel tax credits scheme.

To say fossil fuel companies receive $10 billion in federal subsidies a year is overblown. (Supplied: Woodside)

Assessing the claim

Fact Check has previously considered a claim made by Nationals senator Matt Canavan that there was "no subsidisation of Australia's fossil fuel industries", finding that claim to be drawing a long bow.

A similar approach is taken here to the definitions involved.

However, while Senator Canavan's claim included state government support for fossil fuels, Fact Check takes Mr Bandt to be referring to $10 billion in "handouts" by the federal government only, on the basis that he made his claim in reference to how his party's policies would affect the federal budget.

During his interview, Mr Bandt said the Greens' climate plan "saves the budget $52 billion over 10 years, in part because we are going to end the handouts to those big coal and gas corporations".

What makes a subsidy?

What counts as a subsidy and what doesn't is a vexed issue. (ABC News: Nick Haggarty)

Definitions of what constitutes a "subsidy" can vary significantly.

"In broad terms, subsidies can involve directly or indirectly using public finances, public resources, or regulatory mechanisms to lower production costs, thereby encouraging production to be higher than it otherwise would have been," Fact Check previously found.

Subsidies can also target consumers to encourage consumption, such as those included by the Organisation for Economic Cooperation and Development (OECD) in its definition of "support" for fossil fuels.

The UNEP has recommended measuring fossil fuel subsidies according to the definition "most widely recognised" internationally, contained in the World Trade Organisation's Agreement on Subsidies and Countervailing Measures.

It says a subsidy exists when a government provides "a financial contribution" that confers "a benefit", and specifically covers: direct payments; forgone revenue (such as tax credits); the provision of goods or services; and any support from income or price regulation.

Source of the claim

A spokesman for Mr Bandt's office said the $10 billion figure was drawn from costings undertaken by the Parliamentary Budget Office (PBO).

These costings, which were provided to Fact Check, considered the 10-year budget impact of a Greens policy titled "End subsidies for coal, oil and gas".

Given the proximity to the 2022 federal election, Fact Check has only considered potential subsidies listed in the costings document.

The PBO examined five measures, one of which — to "[a]bolish fuel tax credits for all industries except agriculture" — accounted for roughly three-quarters of the budget savings.

The other large contributors were measures to abolish tax breaks for coal mining, oil and gas companies which allow them to bring forward depreciation of assets or claim immediate deductions for exploration expenses.

Fact Check previously found that Australian fossil fuel producers were "to some degree 'subsidised' by federal and state governments, with a range of budget spending programs, tax concessions and other forms of assistance on offer", including tax breaks for accelerated depreciation and exploration.

During the campaign Mr Bandt has also cited figures produced by progressive think tank The Australia Institute, with the Greens' climate policy referencing its annual report on fossil fuel subsidies.

The institute's latest report, for 2021-22, shows fuel tax credits made up roughly 77 per cent of all federal spending it considered to be “fossil fuel assistance” to producers and major consumers.

The problem with projections 

Removing the fuel tax credit would give businesses access to other tax breaks. (ABC News: Chris Gillette)

While Mr Bandt said "we're giving $10 billion a year" in subsidies, this is not supported by the costing from the PBO for the next few years.

Its modelling projected that the Greens' policy would net $96.4 billion in savings over a decade, with the largest savings expected in the final years.

But forecasting becomes less reliable over longer periods, and the PBO's estimate for 2023-24, the first year when the full impact of the proposals would be felt, was a saving of $8.6 billion.

Since the PBO produced its costings the government has announced a temporary reduction in the fuel excise rate, which is expected to reduce the cost of the fuel tax credits scheme by $2.7 billion in 2021-22 and 2022-23.

Indeed, the PBO document also cautions that its estimates are "subject to uncertainty" relating to, among other things, "variations in fossil fuel prices, technological developments and other developments that change fuel usage".

Estimates for one proposal, worth roughly $500 million per year over the decade, were deemed "highly uncertain and likely to vary from year to year".

It's worth noting that although abolishing some measures would remove a cost to the budget, the PBO said the changes would likely also increase the expenses companies could claim at tax time.

For example, it estimated that removing fuel tax credits would save $7.9 billion in 2023-24, offset by an expected $1.8 billion reduction in company tax receipts as companies switched from claiming the credits to claiming a deduction for fuel expenses.

Who benefits from fuel tax credits?

Fuel tax credits refund taxes paid on petrol, reducing the price paid by businesses. (ABC News: Michael Lloyd)

As noted, fuel tax credits represent the most significant potential "handout" to the fossil fuel industry.

The Australian Tax Office explains that these credits refund taxes (excise or customs duty) paid on fuel used by machinery, equipment and heavy vehicles, along with light vehicles travelling off public roads.

In some cases credits can be claimed for "domestic electricity generation" and "non-profit emergency vehicles and vessels".

The scheme applies to fuel consumers, though that category also includes fossil fuel producers whose activities rely on the use of fuel.

In an email to Fact Check, ​​David Pearce, executive director of the Centre for International Economics, said that who is the ultimate beneficiary of any tax credit will depend on its flow-on economic effects, and that a fuel tax credit "will in the first instance benefit the users of fuel (which includes agriculture), but may also benefit the sellers (fossil fuel industry)".

"At the very least, we would think the [economic benefit] is shared," he said.

"So even if you think the credit is a 'subsidy' it's not all necessarily a subsidy to the fuel industry."

How much do they get?

Importantly, fuel tax credits are claimed by users in a range of industries.

The most detailed figures that allow these credits to be apportioned to the fossil fuel industry are published by the ATO, with the latest covering the 2019-20 financial year.

The data shows $891 million (12 per cent) of that year's total went to companies involved in agriculture, forestry and fishing. (The costed Greens policy said credits should be retained for agriculture).

A further $1.1 billion (15 per cent) spread across everything from financial and insurance services to construction and public administration and safety.

Meanwhile, more than $1 billion (14 per cent of credits) went to coal mining companies, and another $124 million (1.7 per cent) to those involved in oil and gas extraction, petroleum and coal product manufacturing or electricity generation, to name just a few sectors.

The multi-billion dollar question

The mining industry argues fuel taxes are an implicit road charge, but one expert says they are set at an 'arbitrary' level. (ABC Central Coast: Sofie Wainwright)

In order to approach anything like $10 billion per year, as Mr Bandt claimed, fossil fuel subsidies would need to include fuel tax credits — but the extent to which these might be considered a "subsidy" is contested.

The argument boils down to whether credits provide a benefit or remove a penalty.

The mining industry and others argue the latter, on the basis that "fuel excise [tax] is an implicit road charge" that should not apply if the fuel is not being used to drive on public roads, meaning fuel tax credits simply refund businesses that should never have paid it.

By contrast, The Australia Institute says fuel taxes "are not linked to road funding, as is commonly suggested by recipients of this subsidy; they simply contribute to general revenue, like most other federal taxation."

It argues the refunding of taxes "works to make fossil fuel use cheaper for energy-intensive businesses, such as coal mines, but it is not available to other businesses and individuals that use machinery and vehicles for productive use".

The 2009 Henry Tax Review said state government fees for vehicles coupled with the fuel excise "could be viewed as a crude 'two-part tariff' for road usage. While road taxes are not hypothecated (that is, earmarked) to road spending, revenue from these taxes does cover the direct cost of infrastructure spending on roads and bridges".

Robert Breunig, who heads the Australian National University's Tax & Transfer Policy Institute, told Fact Check that Australia's excise rate was set at an "arbitrary level", without any reference to the cost of roads.

He explained that fuel excise taxes were "usually justified" on the grounds of paying for transport infrastructure such as roads, and paying for the consequences of fuel use that were otherwise not factored into prices (so-called "externalities"). The absence of a direct link between taxing and spending made it possible to argue that both elements were covered, to some degree, by the excise.

What do the experts think?

John Freebairn, a professor of economics at the University of Melbourne, told Fact Check that he considered "only a small part" of fuel tax credits to be a subsidy.

He said the fuel tax acted "primarily" as an indirect road user charge, while "a small share, and much less than a half … could be regarded as a pollution tax" — an assessment based partly on pollution taxes in other countries.

Professor Freebairn said accepting that argument meant on-road users were effectively paying a pollution tax while off-road users were not.

However, he added, there was also "no price on CO2-e pollution by electricity generators, home users of gas, steel and concrete, and agriculture".

Professor Breunig said he thought fuel tax credits might be "partially" a subsidy.

"While it's true that fossil fuel companies don't use the roads, they do produce emissions that create an externality (global warming; pollution) that is unpriced," he said.

Deciding not to apply the tax to a particular group "could partially be viewed as a subsidy or at least the part of the excise that relates to the [unpriced costs]", Professor Breunig said.

Steven Hamilton, an assistant professor of economics at George Washington University and former Treasury official, said the fuel excise was intended to indirectly target the use of roads so "should never have been levied on the relevant users in the first place", meaning it was "not a subsidy".

"What matters here in principle is on what basis the tax against which the credit applies was levied," he said.

Mr Pearce said context was critical in any assessment of whether a tax or subsidy was good or bad, adding that a "subsidy to offset an unintended distortion of a tax could be a good thing", and that this was the purpose of the fuel tax credits.

However, he said, the important question was not so much whether something was a "subsidy" but how removing it would affect, for example, the economy or the environment, and whether it would make people better off.

It's worth noting that the OECD's inventory of support for fossil fuels treats Australian fuel tax credits as a subsidy to either producers or consumers.

Professor Miranda Stewart, Director of the Tax Group at Melbourne University Law School, previously told Fact Check that in her view the fuel tax credit represented a subsidy.

"The diesel fuel rebate reduces the cost of fuel business inputs for mining and agriculture, which are some of our largest emitting sectors, and this enables them to … export and [sell to] domestic markets at cheaper prices so in this sense, there is a subsidy," she said.

Principal researcher: David Campbell

factcheck@rmit.edu.au

Sources