LJ 2011-03-03 12:06:00

Mar 3rd, 2011 | Filed under LiveJournal Import

What is the function of fuel duty?

The function of tax has been suggested to be to achieve one or more of the following aims:

1. Raise revenue
2. Reprice goods and services considered to be incorrectly priced by the market
3. Redistribute income and wealth

Fuel duty does not correctly achieve any of those, at least not fairly.

#1 could be argued to be the case, but raising revenue through taxation ought to be achieved via progressive mechanisms. Fuel duty is regressive, and therefore not a justifiable way to generate tax revenues.

#3 is right out, because of the aforementioned regressive nature of the thing.

Which leaves #2 – repricing goods and services that the market does not correctly price. This is kind of where the point is. In the way that products such as tobacco and alcohol are taxed in order to make them less accessible and to pay for health services further down the line, fuel is taxed in order to permit investment in greener energies, in infrastructure, and as a means of dissuading people from driving.

But the difference between rural and urban areas blows that argument apart. The cost of infrastructure development is hugely different, the environmental damage is different, and the mileage people do is different. In a suburban setting, the price you’d have to set petrol at to discourage short journeys that could be taken via public transport would be crippling in a rural setting where average mileage is so much higher.

Do I know what the right answer is? Of course not, that’s not what I do.

But as it stands, existing fuel duty does not achieve any of the objectives that would justify its existence.

  1. Max
    Mar 3rd, 2011 at 16:07
    Reply | Quote | #1

    Could you provide support for your assertion that fuel duty is regressive? Do you say it’s regressive because fuel tends to be a larger part of a poorer persons budget? I imagine richer people tend to consume more fuel.

  2. Alex
    Mar 3rd, 2011 at 19:00
    Reply | Quote | #2

    You can’t be giving fuel tax breaks to poor people – the lower social orders are statistically the worst drivers (due to being more stupid). If you taxed fuel on a sliding scale proportional to income, you’d encourage the stupid to be on the road more. Hardly what we want!

    • James
      Mar 3rd, 2011 at 20:51
      Reply | Quote | #3

      Sorry to say, I know people who’d break your face for having such sickeningly Tory views – if you weren’t trolling for effect :oP

      I’m not proposing tax breaks for the poor – I would still support the role of fuel duty as a repricing of fuel to a more “correct” level, rather than a means of achieving socioeconomic parity or a way of raising revenue (which should all be done through income tax really).

      If anything, I’m proposing a differential taxation system that charges different amounts for different locations.

      In order to avoid skewing markets, the cost of travel from Fuel Vendor A to Fuel Vendor B must always exceed the difference in price between A and B, and of course the whole thing is practically unworkable. But if you want to use duty to vary the cost of fuel to suit a particular agenda, you need to take into account where that fuel is being used.