IN ITS desperate bid to find money to plug a $200 billion revenue hole in the federal budget, the Rudd Government is looking at removing the freeze on petrol tax imposed by John Howard in 2001.
The freeze has already cost the budget $12.6 billion and is expected to be worth another $20 billion in forgone revenue over the next four years.
There is some pressure from within government ranks to take the tough decision to reintroduce the automatic half-year indexation.
But it would be a politically risky decision that would spark a backlash from motorists.
Senior ministers have fiercely resisted any change being imposed in the budget on Tuesday.
However, sources have told the Sydney Morning Herald the idea remains on the table.
Some insiders are pushing for it to be done as part of an overhaul of petrol tax under the "political cover" of the Henry tax review at the end of this year.
One option is to introduce a new-look tax with a new name. It would be indexed.
The Howard Government made the snap decision to freeze petrol tax at 38.1 cents a litre for unleaded fuel in February 2001 to combat a political problem surrounding GST before the election that year.
It has saved motorists 9 cents a litre in tax, although government insiders say pump prices have fluctuated by far more than that over the same period.
The respected budget watcher Chris Richardson from Access Economics said that in 2009-10 the freeze will cost the budget $4.1 billion and over the next four years it means lost revenue of $20.4 billion.
Mr Richardson said it was "a pretty dumb policy" to freeze petrol tax in 2001 and it was becoming more costly every year.
He said that restoring the twice-a year indexation linked to the consumer price index would help with the "urgent need to rebuild the nation's revenue base".
"We don't tax fuel highly enough," Mr Richardson said.
"Let's hope that the Henry review dreams up a reform of fuel taxation which quietly but effectively restores indexation or its equivalent.
"The vandalisation of the tax base has to stop, and there are few better candidates than this."
Chuck Berger, the Australian Conservation Foundation's director of strategic ideas, said he supported restoring petrol indexation.
"We oppose the freeze on petrol excise. It costs the Government substantial amounts of money and hasn't been sending the right signals on fuel efficiency," he said.
While petrol tax has been frozen, the Government continues to automatically - and quietly - increase the excise on alcohol and cigarettes twice a year on February 1 and August 1.
The Treasurer, Wayne Swan, said yesterday he was determined to fix the unprecedented hole in the budget as he confirmed more than $200 billion had been wiped from the revenue side with big falls in company tax and capital gains tax.
He told ABC radio the global recession "has had a dramatic and brutal impact on government revenues".
The Finance Minister, Lindsay Tanner, said the budget would be only the first instalment of tough decisions.
"We don't have to do all the work in one budget," he said.
Email a friend