From the Budget Speech

Energy reform

Mr Speaker, the Government is making an announcement tonight about the long-term tax treatment of alternative fuels to petrol and diesel.

A substantial transitionary period is provided for producers and consumers to adjust to the new arrangements which will be fully effective by 2012. This will provide certainty for investment decisions.

Tonight I am announcing a package of measures to encourage the early supply and take-up of cleaner diesel and petrol. A significant improvement is the ongoing reduction of sulphur in diesel. This will facilitate the adoption of new engine technologies with further reductions in harmful vehicle emissions.

Budget Paper 2 -  expense - 18

Fuel tax reform

Expense ($m)

	2003-04	2004-05	2005-06	2006-07
Australian Taxation Office - fuel tax framework	-	-	-	-
Australian Taxation Office - biodiesel production grants	15.0	44.0	76.0	99.0
Industry, Tourism and Resources - ethanol production grants	27.0	45.0	61.0	62.0

From 1 July 2008, the Government will provide grants to the producers and importers of fuels that are currently exempt from excise (and customs) duty and which are used in internal combustion engines. These grants are part of arrangements to make these fuels subject to fuel excise and will apply for a transitional period. The grants will be progressively reduced, raising the effective excise (that is, excise less grant) for untaxed fuels from zero prior to 1 July 2008, to their final rates in five even annual steps commencing from 1 July 2008.

The transitional grants form part of a programme that will establish a long term sustainable taxation framework for fuels by addressing a number of anomalies in the current fuel tax system and providing increased certainty for investors, while meeting existing Government commitments and providing time for industry to adjust.

In addition, the Government will continue to provide production grants for fuel ethanol from 18 September 2003 under the same basis as announced in the Mid-Year Economic and Fiscal Outlook 2002-03. The Government will also provide grants for the production and importation of biodiesel, from 18 September 2003. Both grants will be reduced in five equal annual instalments from 1 July 2008.

See also the related revenue measure titled Fuel tax reform in the Treasury portfolio.

Measures for a Better Environment — cleaner fuel

The Government will introduce a package of measures to deliver on its Measures for a Better Environment commitment to encourage conversion from the dirtiest fuels to the most appropriate and cleanest fuels as announced by the Prime Minister in May 1999. The proposed Energy Grants (Credits) Scheme (EGCS) will be extended to include liquefied natural gas (LNG) and biodiesel (but not blends of biodiesel and diesel) as alternative fuels eligible for an on-road credit.

LNG will be approved under the EGCS from 1 July 2003. Biodiesel will be approved once the fuel standard for biodiesel under the Fuel Quality Standards Act 2000 has come into effect. The grant rate for LNG will be 8.130 cents per litre and the grant rate for biodiesel will be 18.510 cents per litre.