Budget's petrol shock will leave voters fuming

    Motorists will pay more for fuel in future and it looks set to keep rising as Prime Minister Tony Abbott prepares to break his no "new taxes" promise for a second time – this time by taxing petrol at a higher rate.

    The plan, which the government refused to officially confirm, compounds another tax increase to be announced in the budget – a special deficit levy on higher income earners designed to raise about $2.5 billion a year for its duration.

    It is directed at redressing a budget hitting lower income earners more than the rich, but the political pain may not be worth it and it could be superseded by the incendiary issue of fuel prices.

    The twice-yearly adjustment to petrol would be especially hard on families in the outer suburbs whose lives are slave to the car, whose jobs depend on long daily commutes, and who often have no access to public transport.

    It is understood the budget – which is now all but finalised and heading to the official printer – contains changes to restore indexation of federal petrol excise according to inflation, adding up to 4¢ or 5¢ a litre within four years, which would be on top of the other factors that have been driving petrol prices up.

    Even before the petrol increase had surfaced, the deficit tax had some economists and Liberal MPs, and former Liberal treasurer Peter Costello, arguing it would harm growth by reducing consumers' spending power.

    Disgruntled Liberals also believe the special deficit levy represents a blatant breach of an oft-made promise of no new or increased taxes, and, of no surprises.

    The Australian Automobile Association (AAA) says the return to using the consumer price index to upwardly adjust the per-litre amount of federal excise would add about 0.6 of a cent per litre in 2014-15 for a modest initial return of $339 million to Canberra.

    However, that revenue would climb exponentially as the price rises 3.5¢ to 4¢ a litre in 2017-18, raising $1600 million in that year, or $3.7 billion over the first four years.

    Federal excise was frozen at 38.14¢ a litre by John Howard in 2001 as anxiety over the introduction of his 10 per cent goods and services tax threatened to boil over and sink his government during that election year.

    Facing a difficult byelection, the then prime minister cut fuel excise by 1.5¢ and then froze it in perpetuity at the 38¢ rate.

    That move was bitterly contested by his senior economic ministers at the time, including Mr Costello, who knew it would cause fuel excise revenue to dwindle against the rising per-litre cost of petrol. Federal revenue is about $5 billion lower than it would have been had indexation remained, but petrol has been cheaper too.

    Along with the cuts in family payments, taking the eligibility cut-off from $150,000 down to $100,000 per annum, the rise in petrol prices represents a double hit on lower and middle-income earners and many who switched to the Coalition at the election on the promise of lower taxes, and taking the pressure off working families.

    National Roads and Motorists' Association (NRMA) president Wendy Machin said motorists already paid enough in fuel excise.

    The government raised $15 billion in fuel excise last year but only a third went to road and land transport funding, she said.

    "I don't think motorists would be thinking they have had a fuel tax holiday," Ms Machin told ABC radio on Friday.

    "[Petrol] is a commodity that absolutely every family and every business uses so it is going to have an impact on every single person in Australia.

    "When they go to the bowser to fill up I guess they can consider that they're giving an extra gold coin to the government.

    "If they're going to do that let's make sure we get some better value for our money than we got in the past."

    AAA executive director Andrew McKellar said the tax increase would be "grossly unfair" and that voters would be left deeply cynical about the government.

    "I think the reality is that this would be a grossly unfair tax grab," he said.

    "We're seeing a total of about $15 billion being raised through fuel excise each year, but only a small proportion of that, about less than a quarter, ends up getting reinvested in roads and other land-transport infrastructure.

    "Any tax increase like this is going to hit those who are living in the outer part of our cities, in our rural and regional areas, it's going to hit them the hardest because they have to drive the longest distances and in many cases, they don't have any choice."

    Labor frontbencher Anthony Albanese has slammed the proposal, saying the Coalition government was ''attacking the public through the (petrol) bowser''.

    ''It's a regressive tax because if you live further away from where you work and you don't have public transport options . . . you'll pay more and you'll pay it every week,'' he told the Nine Network on Friday.

    ''(It's) bigger than the carbon price on everyone's personal motor vehicle.''

    The petrol shock in the budget appears to explain an ominous prediction made to Fairfax Media this week by a federal minister, who said the controversial deficit levy would be "one of the more popular" aspects of next Tuesday's economic statement.

    Treasurer Joe Hockey said this week he believed the government was not breaking promises on tax because it had taken a plan to the election to increase taxes on companies to fund its paid parental leave scheme.

    "We went to the last election promising to introduce a levy for PPL, so claims that we said we would never introduce new taxes are just wrong," he said.

    Mr Hockey also predicted the debt levy would be hardly discussed on budget night, given the weight of other measures aimed at restoring the government's finances back to health.

    VIDEO ANIMATION: Sweet Budget Time with Rocco & Denis

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