We had a choice between pricey petrol and high taxes. And we picked taxes

AUSTRALIA made a big choice 13 years ago. Now it’s really starting to hurt our hip-pockets. And both parties are to blame.

Former prime minister John Howard relented to media pressure. Picture: David Caird

I’D like to apologise in advance should a deficit tax be levied in next Tuesday’s Budget.

It’s partly my fault.

This is actually a declaration of group guilt for what some reckon to be a $5 billion mistake. Back in 2001 I was political editor for the Daily Telegraph and we hammered Prime Minister John Howard week after week — often on the front page day after day — over the biggest household expenditure issue of the time — petrol costs.

BUDGET 2014: THE BIGGEST LOSERS?

MEET ABBOTT’S DEBT-INATOR

Former prime minister John Howard relented to media pressure. Picture: David Caird

The Howard government was heading for the 2001 election in November. The GST was introduced in July and there were Liberal fears ‘Howard’s Battlers’, that is traditionally Labor-voting families in Australia’s working class suburbs, were getting antsy about it.

News stories about the pain of fuel costs to households by myself and others added to the concerns and Mr Howard, no doubt feeling GST jitters, relented in early March.

He reduced indexation of petrol by 1.5 cents a litre and ended the twice-a-year indexation of the excise Labor had introduced in 1983.

T HE GREAT ECONOMY MYTH: IS THERE A CRISIS?

“Let me make it clear that I was plainly wrong in not understanding some of the concerns held by the Australian people about the price of petrol. And I acknowledge that,” he told the Daily Telegraph.

That was great news for families then, but in 2014 the frozen excise rate has become a foregone revenue source worth around $5 billion a year which would have to be made up elsewhere.

Labor did not try and rectify the problem either. Picture: News corp Australia

That’s one reason why the so-called deficit levy might appear in next Tuesday’s budget.

If it was a mistake, Mr Howard and Treasurer Peter Costello didn’t attempt to rectify it in their remaining six years in office and nor did Labor during the six Rudd/Gillard years.

There’s no suggestion yet that Prime Minister Abbott will look at fuel indexation next week, even though the money it would bring in would help pay for the roads he wants to build in his role as the ‘Infrastructure Prime Minister.’

If that indexed excise had kept rising over the past 13 years some of today’s national budgetary problems might have been eased.

Many taxpayers might believe the money would only have disappeared elsewhere but to economists the petrol excise indexation extinction is important.

It helps explain why the government can be so short of cash when the national economy is doing relatively well. But it ignores a political cost.

Petrol prices since 2001 have jumped over what once was called “the psychological $1-a-litre barrier” and are north of $1.60 in some areas, but the excise remains at 39.14 cents-a-litre.

If indexation had been maintained, that $1.60-a-litre would be much greater and families would still be complaining because it’s difficult for them to avoid weekly visits to the bowser.

However, in 2001 Treasurer Peter Costello was aware of the revenue danger the Government was tempting, and appeared to invent a word to describe it.

At a December press conference he was asked about the effect of the excise change: “So it does not give you any windfall,” he replied, “If anything it gives you a windloss.”

Originally published as We had a choice between pricey petrol and high taxes. And we picked taxes