Budget tightrope to cut oil dependence, ease inflation

The war in the Middle East and the fuel crisis it triggered forced a frantic re-drafting of federal budget documents.

Before the conflict disrupted the narrow strip of water through which roughly 20 percent of global oil supplies pass, money-cutting and reform were touted to improve Australia’s long-term financial situation.

However, the government temporarily halved the tax on gasoline and diesel in order to immediately get rid of extremely high fuel prices, which cost the public budget $ 2.5 billion.

“There is a real tightrope they have to walk to get to the right outcome,” says Alison Reeve, energy and climate change program director at the Grattan Institute.

“They have a crisis to deal with, but they also need to be very careful about the structure of spending because you don’t want it to be inflationary either.”

He adds that some segments of society are truly suffering, and not providing any government aid risks political pain.

There are calls from the federal opposition and others to accelerate mining exploration, but Ms Reeve says policymakers should focus on reducing dependence on imported fuels through electrification and renewable energy sources.

Climate Change and Energy Minister Chris Bowen broadly agrees.

“No war can stop the flow of the sun to Australia,” he told reporters on Monday.

“No sanctions can be applied to wind.”

Unveiling a four-point budget plan to “Trump-proof” Australia’s economy from the energy crisis last week, Climate Council chief executive Amanda McKenzie urged the government to stay away from short-term fixes.

“It needs to meet the times by reducing reliance on fossil fuels and investing in reliable, affordable Australian energy from solar, wind and batteries.”

Transportation is an important opportunity to alleviate dependence on imported fuel.

Electric vehicles already release almost 15 million liters of petrol and diesel each week, and interest in electric vehicles has exploded since the start of the war, with sales of new and second-hand cars soaring.

But EV advocates worry the pace of adoption could weaken at a time when momentum is needed most, according to rumors in tax settings

Recent remarks from Transport Minister Catherine King suggest the introduction of the well-established road user charge, which sees drivers charged per kilometer, may be delayed as the government avoids any potential disincentives to the immediate uptake of electric vehicles.

It is reported that the reorganization of the fringe benefits tax deduction, which allows salaries to be packaged for electric cars, is also on the agenda.

Ms Reeve says there is a case for restructuring discount settings to reduce costs and increase equity without eliminating them entirely.

Freight also dominated the headlines as heavy diesel costs squeezed the industry and increased the cost of food and good transport.

Ms. Reeve says charging infrastructure in busy freight corridors could be an attractive candidate for additional government support, as well as low-cost financing options to help owner-drivers purchase electric trucks.

Mining machinery is also heavily dependent on imported fuels.

Mining companies and other off-site diesel users are entitled to an exemption from the diesel excise tax, a credit scheme originally created by recognizing that revenue from the pump would fund public roads.

But the Australian Council of Trade Unions and other groups argue the loan allowance is too generous and provides little incentive for miners to use electricity.

Australian National University engineering professor Andrew Blakers said reconsidering tax breaks could lead more miners to follow the lead of iron ore giant Fortescue, which is pursuing aggressive cuts in on-site diesel use.

“Fifty percent of new truck sales in China are electric,” he told AAP.

“All this nonsense about electric trucks not being ready is just wrong.”

Australia is already making progress on the broader transition to a grid powered by renewable energy.

But Prof Blakers points to areas that require further attention, including additional large-scale pumped hydropower projects to provide storage for an electrified economy.

Armidale’s mayor, Trevor Brown, wants a federal budget that would provide more for households left without home electricity and solar power.

For example, he says schemes such as the highly successful home battery scheme could do more to include low-income households and renters.

Government-supported local energy centers would also be useful for regional areas where information is lacking.

“Initially it’s actually mostly about education,” he says.

“If we can encourage households to insulate and not leave oven doors open day or night, we can stop them racking up huge electricity bills they can’t afford.”

Gas exports have emerged as a key battleground ahead of the federal budget to be announced on May 12.

Unions, Greens and opponents are calling for higher taxes on LNG to capture more windfall profits from the conflict.

Gas industry group Australian Energy Producers is leading the defence.

This, he argues, would drive investment overseas and jeopardize future energy supplies at a time of global uncertainty.

It should also be noted that the Ministry of the Prime Ministry ordered the Undersecretariat of Treasury to model “new tax options” for the gas industry.

But Resources Minister Madeleine King also highlighted the large amounts of private capital invested in gas projects that also serve the domestic market.

Australia’s Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national news channel and has been providing accurate, reliable and fast-paced news content to the media industry, government and corporate sector for 85 years. We inform Australia.