Exclusive: Change to scheme that rebates mines and farmers for off-road use of diesel would prompt a vicious backlash

The Abbott government is considering a measure that would prompt another vicious backlash to its May budget: cutting back fuel tax rebates for miners and farmers and other agricultural businesses that are worth more than $3bn a year.



Senior government sources have confirmed the budget razor gang has the fuel tax credit (formerly known as the diesel fuel rebate) “firmly in its sights” – a scheme that rebates miners and farmers and others for the off-road use of diesel.

Another source said the rebate would be pared back for claims above a certain threshold, perhaps once $100,000 in tax credits have been claimed in a year, which would spare small farmers and small-time diesel fuel users such as fishers, some irrigators and Indigenous communities, but hit big miners and large agricultural concerns.

A final decision has not been taken, but winding back the benefit would enrage the powerful mining industry which says the allegation that fuel tax credits are a subsidy, or corporate welfare, is part of a “thinly disguised anti-mining agenda” and which proved how hard it could lobby with its huge campaign against the Labor government’s mining tax.

It would also cause a significant backlash from the farming lobby and would hit not just farmers but agricultural businesses including processors, sugar mills and irrigators.

But the move would be backed by the Greens and environmental groups, which have long called for the abolition of the excise rebate.

According to the parliamentary budget office the rebate to the mining industry will cost $2.4bn in 2014-15, $3.4bn in 2015-16, and $3.5bn in 2016-17. According to the tax office the full cost of the rebate was $5.5bn in 2011-12 – around $2bn to the mining industry and $700m to farmers, with large amounts also to the trucking industry – which gets a partial rebate of the 38.1 cent a litre fuel excise.

The prime minister has insisted budget pain must be shared by all parts of the community, but the government is fully aware of the huge backlash the move would create.

The Minerals Council of Australia chief executive, Brendan Pearson, told a Senate committee this month that it was a nonsense to call the rebate a subsidy, and that neither the Productivity Commission not the federal Treasury looked at it that way. Pearson said it was obviously a justified tax rebate on an important business input.



But the Greens have championed the move as a way to save money without hitting pensioners and the poor.

"If you ask most people, 'Do you think that Gina Rinehart and her companies should pay the same tax on fuel that you do every time you go to the bowser?' most people would say yes," the Greens deputy leader, Adam Bandt, said last week.

"And if you ask people if they think the likes of Gina Rinehart should be asked to pay a little bit more instead of attacking pensions or paying more to see the doctor, most people would say yes a well."

The Australian Conservation Foundation has also long championed an abolition of diesel fuel rebate, saying it could save as much as the federal government’s entire annual spend on schools.

The government is already suffering a bitter backlash, including from within its own ranks, over a plan – also not yet finalised – to impose a levy, or temporarily increase in the marginal income tax rates for people earning more than $80,000 a year. That move has been described by government sources as “electoral suicide” and “Tony Abbott’s Gillard moment” – a reference to the fact that it clearly breaks the prime minister’s pre-election promise not to raise taxes.

Asked whether the budget would cut the fuel rebate, the Nationals leader, Warren Truss, told the National Press Club: "The farm sector is one of the few in the world that pays full price for fuel, other countries subsidise fuel, it is true that it has been free of excise for some time and that is the way we would like to keep it."