House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Customs and Consumer Affairs, the Hon. Warren Truss MP)

REGULATION IMPACT STATEMENT

REDUCTIONS IN THE EXCISE DUTY ON AVIATION GASOLINE

PROBLEM OR ISSUE IDENTIFICATION

Most general aviation operators use piston engined aircraft powered by avgas. They contribute to the cost of air traffic control and navigation services provided by Airservices through excise and customs duty on avgas. This system of cost recovery is inequitable in that many general aviation operators (for example, agricultural operators) only rarely use the services provided by Airservices, yet still pay the duty.

SPECIFICATION OF THE DESIRED OBJECTIVE

As part of its aviation policy, the Government has undertaken to implement, after consultation with the aviation industry, a more equitable system for funding general aviations contribution to Airservices. In the interim it has stopped any increases in Airservices component of the avgas duty, apart from Consumer Price Index increases.

While major changes to Airservices charging system are yet to be introduced, the 0.6 cents per litre reduction addressed in this legislative amendment is in line with the Governments policy objective. The reduction results from close scrutiny by Airservices of the forecast cost of services provided to general aviation and a review of the forecast level of activity by the general aviation sector in 1997-98.

IDENTIFICATION OF OPTIONS

Two options were available:

(a)

Retain the levels of duty at the previous rates until a new system of charging is introduced which fully addresses the Governments policy objective.

(b)

Reduce the level of duty on avgas as subsequently implemented in Excise Tariff Proposal No. 2 (1997) and Excise Tariff Proposal No. 2 (1998) and Customs Tariff Proposal No. 6 (1997) and Customs Tariff Proposal No.1 (1998). This Bill only addresses alterations made in the Excise Tariff Proposals.

ASSESSMENT OF IMPACTS

(a)

Retention of the avgas duty at the previous rate would have meant that general aviation operators would not have received a justifiable reduction in the price they pay for avgas.

(b)

The selected option will deliver savings to users of avgas in the order of $0.7M in 1997-98 in customs and excise duty. The users who will benefit include private aircraft owners, sport aviation participants, flying training school operators, agricultural aircraft operators and smaller charter operators. Where applicable, there will be an opportunity for aircraft operators to pass on savings to end users such as student pilots, farmers and charter customers.

Costs to fuel company suppliers of avgas and to the Government in administering the change to rates of duty have been minimal.

The financial benefit to avgas users far exceeds the small administrative costs associated with implementing the changed rates of duty.

CONSULTATION

Airservices conducts a regular program of consultation with peak aviation industry bodies on a range of major issues, including its proposed schedule of charges for the following year. The proposed reduction in the duty on avgas was raised in Airservices consultation with industry in April 1997, in advance of finalising prices for its services for 1997-98. Aviation industry representatives were not opposed to the reduction.

Airservices will consult extensively with the aviation industry on new charging arrangements before major changes are implemented.

CONCLUSION AND RECOMMENDED OPTION

The preferred option is to implement the legislative changes to formalise the 0.6 cents per litre reduction in the duty on avgas notified in Special Commonwealth Gazette No. S261 on 2 July 1997 and was tabled in the House of Representatives in 27 August 1997 as Excise Tariff Proposal No. 2 (1997). Following the passage of the legislation package implementing the fuel substitution reforms, which commenced on 31 January 1998, this decrease was re-instated by a notice published in the Gazette on 18 February 1998. This notice was incorporated in Excise Tariff Proposal No. 2 (1998) which was tabled in the House of Representatives on 11 March 1998. This course is consistent with the Governments policy objective in respect of Airservices charges to general aviation. It delivers savings to the aviation industry with only minimal administrative costs.

IMPLEMENTATION AND REVIEW

The reduction in duty was implemented in July 1997 and February 1998 through the Tariff Notice and Proposal process under section 160B of the Excise Act 1901 . This process permits immediate changes in the level of duty. In this matter it avoids the speculative trade in fuel products, which could adversely affect revenue projections. As noted, implementation incurred minimal administrative costs.

This reduction in avgas duty precedes a major review of Airservices charges to industry, including the use of duty on avgas as a means of recovering the costs of services to the general aviation sector. Airservices will consult extensively with the aviation industry before new charging arrangements are implemented.

The other amendments made to the Act in this Bill are regarded by the Office of Regulatory Review as being technical in nature, having no additional impact on industry.