Comment: Road to nowhere - the fuel excise ain't a progressive tax

Treasurer Joe Hockey has defended his statement that “the poorest people ­either don’t have cars or actually don’t drive very far in many cases”. (AAP)

When you manage to spin one of the few positive policy measures coming out of the budget into a negative, you're in trouble.

The budget process is a long awful beast of thing, which involves not only hard work developing policy, but  also requires the Treasurer to become a salesperson.

The two aspects are not unlinked. Good policy can be tough enough to sell to the public or sections of business, but bad policy pretty much renders any sales job as null. The phrase lipstick on a pig springs to mind.

One of the biggest criticisms of Wayne Swan was that he was utterly useless as a salesperson. Suggestions that he couldn’t sell beer on a hot day were not uncommon. Currently, there are a lot of people standing around Joe Hockey’s beer-stand, and no one seems of a mind to purchase any amber fluid.

“A progressive tax is not about who pays the most in a dollar amount, but who pays the most of their income.

Yet Joe Hockey on Thursday morning tried to argue that the tax will hurt rich people more because rich people spend more money on fuel each week.”

How did it come to this? Back in 2007, Joe Hockey was the man John Howard turned to sell WorkChoices. He told the media that “Joe will bring energy, he will bring intelligence. I’ve been very impressed with the way he’s gone out and sold the Human Services arrangement and portfolio and I think brought a great deal of personal touch and so forth to that portfolio. I think Joe's a good media performer, Joe's an avuncular sort of bloke.”

The problem was WorkChoice was a dog of a policy, poorly formed and little deserving of a decent sales job. But you would expect the avuncular one would be able to demonstrate a bit more of his “personal touch” when it came to selling his own budget – especially aspects which are good policy.

In 2001, John Howard froze the indexation on petrol for purely political purposes. Since then inflation has risen by around 40%, and yet the fuel excise remains stuck at 38.143 cents per litre. Had it risen in line with inflation it would be bringing in around an extra $5 billion a year in revenue.

It also would have helped to encourage people to purchase more fuel efficient cars, and perhaps even encouraged Holden and Ford while they were here to make such cars.

The freeze on indexation was one of the first steps towards creating a structural deficit in the budget, and there are many good policy reasons to bring back the indexation.

But for some bizarre reason, Joe Hockey on Wednesday thought the best way to sell it was to suggest it was a tax that hurt the richest the most because “the poorest people either don’t have cars or actually don’t drive very far in many cases”. He suggested the ALP and Greens were “opposing what is meant to be, according to the Treasury, a progressive tax.”

Well, now. There are many things you can call the fuel excise, but progressive ain’t one of them.

In terms of household expenditure, the richest 20% of households spend around 2.5% of their weekly purchases on petrol compared to the poorest 20% spending 2.9%. In terms of expenditure as a percentage of income the poorest households spend about 4.5% of their income on petrol compared to 1.4% by the richest.

A progressive tax is not about who pays the most in a dollar amount, but who pays the most of their income.

Yet Joe Hockey on Thursday morning tried to argue that the tax will hurt rich people more because rich people spend more money on fuel each week.

That rich people spend more money on something than poor people is not exactly the greatest insight ever made by a treasurer.

When challenged on ABC NewsRadio that the Parliamentary Library had found that “petrol and diesel excises are regressive in that people on low incomes pay a higher proportion of their incomes in the form of excise than people on high incomes”, Hockey replied, “but that is the case with any indirect tax.”

Well, touché.

It takes an odd sense of logic to agree with your critics while thinking you have made a sterling defence.

The stupidity of this is that the actual hit to any household is going to be small. The indexation will add maybe 2-3 cents per litre to the cost of petrol. The ABC Fact Check site found the average family will pay around 40 cents extra a week, a large family might pay up to 78 cents.

Yep, let’s calm down. This ain’t the biggest ever hit to poor people.

So, why in the hell wasn’t Joe Hockey saying that instead of suggesting somehow this is a progressive measure, and get himself caught looking arrogant and foolish?

Mostly because he wanted to hit the ALP and the Greens who are (Hockey is correct to say, hypocritically) blocking the measure.

Thus he wasn’t really trying to sell his policy, he was trying to hurt the opposition. But in doing so he made his good policy look stupid, made him seem ignorant of basic economic concepts, and he reinforced the perceptions already created from his budget that he is out of touch with average households.

It also served to highlight the divisions within the coalition, as National Party MPs, who were already hurting politically over the re-introduction of the indexation, came out to criticise the Treasurer.

There are enough poor policy measures in the budget that will hit the poor the hardest that Hockey didn’t need to go and turn one of the few good policy measures into a negative.

But that is what he did.

Greg Jericho is an economics and politics blogger and writes for The Guardian and The Drum.

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