Petrol tax: progressive or regressive> Check the facts

Petrol tax: progressive or regressive> Check the facts

Treasurer Joe Hockey has said “the poorest people either don’t have cars or actually don’t drive very far in many cases.” The Treasure also said that the fuel excise is a “progressive tax”.

The Treasurer defended his statement saying “I can only get the facts out there and explain the facts, how people interpret them is up to them”.

So let us consider how much households spend on fuel.

Selected household income and expenditure data by quintile (2009-10).

Lowest Second Third Fourth Highest
Average weekly household expenditure on petrol ($) 16.36 27.60 38.55 47.00 53.87
Average weekly household disposable income ($) 522 909 1,276 1,756 3,189
Petrol as a share of income (%) 3.1 3.0 3.0 2.7 1.7

Assuming for one moment that every household had $100 to spend each week, the lowest 20 per cent of households would spend $3.10 on fuel compared with the highest 20 per cent who would only spend $1.70.

Of course, the data also shows that the top 20 per cent actually spent more ($53.87) on fuel than households with the lowest income at $16.36. This fact reflects another fact; the wealthy have more money to spend. Six times as much.

It is the relative proportion of income spent on fuel and not how much that is spent that will determine the impact any increase in the fuel excise would have on family budgets.

As poorer households spend proportionally more of their disposable household income on fuel an increase in the fuel excise will represent a larger cost burden for them than it will for households with more money to spend.

A progressive tax is one in which “the average rate of tax increases as income increases” whereas a regressive tax sees “the average rate of tax decreases as income increases”. Therefore, any increase in the fuel excise is a regressive tax increase rather than a progressive tax as claimed by the Treasurer.

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