Fuel tax change 'cost of living bomb' would hit farm tractors

The policy, suggested by the Grattan Institute, would see fuel tax credits for trucks and heavy vehicles slashed from $8 billion to $4 billion, to help repair the budget bottom line.

The report recommended off-road heavy vehicles such as farm tractors still receive some form of fuel tax credit, because they are not damaging public roads, "but at a lower rate than at present, to reflect the carbon emissions and other damage they cause to the community as a whole".

Treasurer Jim Chalmers is yet to comment on the proposal, which has been met with waves of criticism from several industries within the nation's supply chain, who say the cutting the scheme would exacerbate the cost of living crisis, as the inflated transport costs would be passed on to consumers.

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National Farmers Federation president Fiona Simson warned slashing the scheme would be economically disastrous, "lighting the fuse on a multi-billion dollar tax bomb that would send a cost of living shockwave down the supply chain".

"Farmers are already battling a cost of farming crisis, with fuel, fertiliser and other inputs at historically high levels and we're seeing this reflected in the food price inflation causing pain for families at the supermarket checkout," she said.

"Levelling billions in new taxes on the supply chain is a recipe for further inflation."

Electric tractors and alternative on-farm fuels are still years away from commercial viability. Ms Simson said the idea that farmers would simply switch away from diesel was a "dangerous fantasy".

"The only way to use less diesel is to grow less food.... the Treasurer would be wise to rule this out today and give certainty to rural industries," Ms Simson said.

Nationals leader David Littleproud said any changes to the scheme would be a worrying blow to agriculture and backed calls for Labor to rule out the proposal.

"Why should a farmer using a tractor to harvest their crops on farmland have to pay a road tax for a private road or area?" Mr Littleproud said.

"This change would be another tax on farmers. Farmers might start to wonder if they can afford to plant their crops and if it's worth the fuel use. Common sense tells you when supply goes down, prices go up.

"The end result will be higher prices at the grocery store."

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Treasurer Jim Chalmers did not respond to questions regarding the scheme. However, Agriculture Minister Murray Watt said there were no planned changes.

Australia's fuel tax is 47.7 cents a litre, however vehicles that only drive off-road, such as farm vehicles and trucks on mine sites, are not required to pay any fuel tax.

Vehicles heavier than 4.5 tonnes such as semi-trailers, buses and B-doubles only have to pay a reduced rate, and receive a partial credit of 20.5c. Smaller vehicles pay the full tax, incorporated into the cost of petrol at the bowser.

The Australian Trucking Association says its industry would be "decimated" by the Grattan Institute's proposal, which would be the "straw that breaks the camel's back".

"There is no way that any transport business could survive this - diesel is our biggest cost and we're already fighting ridiculous fuel prices," ATA chair David Smith said.

"Ultimately, our customers would have to pay the extra cost. But on the way through, many trucking businesses would fold. And costs in rural and remote areas would go up even more.

The Transport Workers Union national secretary Michael Kaine said the prospect of tampering with the "essential fuel cost lifeline" was as "dangerous as it is ludicrous".

"This move would unfairly target operators and drivers battling razor-thin margins, under pressure to cut corners in safety to stay afloat," Mr Kaine said.