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Australia’s fuel excise cut in 2022 Federal Budget: what you need to know

A person filling up their car with petrol at the bowser

Nicola Dowse and Craig Duff

Posted March 30, 2022

The Federal Government has halved the fuel excise in an effort to ease motorists’ pain at the pump. Though it sounds great, it comes with a catch.

As part of the Federal Government’s 2022 Federal Budget unveiling, the government’s excise on fuel will be halved, saving motorists 22.1 cents per litre of unleaded and diesel fuel. The initiative was announced and came into effect at midnight on March 29, and will stay in place for six months to September 28.

The reduction in the excise will see motorists save roughly $15 when filling a 60-litre tank of unleaded fuel.

However, the Federal Government stands to lose $2.65 billion in excise revenue over the next six months, according to Australia’s peak motoring body, the Australian Automobile Association (AAA).

There have also been concerns as to whether fuel retailers will fully pass on the excise cut to motorists.

“Motorists deserve to know how the Government will police this tax cut and ensure it’s not simply swallowed by fuel retailers, as the experience overseas is that retailers are pocketing the profits and motorists continue to miss out,” said AAA Managing Director Michael Bradley.

The government body who monitors fuel pricing, the Australian Competition and Consumer Commission (ACCC), issued a statement on Budget Night assuring motorists they would be monitoring fuel prices closely.

“We will contact petrol retailers to set out our clear expectations that the savings are passed on to consumers and advise them that we will be monitoring their margins. We will also continue to inform consumers of retailer behaviour,” said ACCC Chair Gina Cass-Gottlieb.

Check our our articles explaining how petrol prices are set for more details, and whether you should change which fuel you use to save at the bowser.

Approximate savings during excise cut

Approximate savings during excise cut

Excise saving per tank

GST saving per tank

Total saving

Small car: 40-litre fuel tank

$8.84

$0.88

$9.72

Mid-sized SUV: 60-litre fuel tank

$13.26

$1.33

$14.59

Large 4WD: 80-litre fuel tank

$17.68

$1.77

$19.45

Source: Federal Government Budget Papers 2022

Everything you need to know about the fuel excise cut

What is a fuel excise?

Australia’s fuel excise is a tax applied to all petrol and diesel fuel sold at service stations throughout the country.

It’s a flat tax which, until Tuesday’s Budget, sat at 44.2 cents per litre of fuel, now 22.1 cents for the next six months.

This means that every time you buy fuel at a service station, 22.1 cents of every litre you buy goes to the fuel excise, regardless of the fuel type or the price per litre set by the individual service station.

No matter if you buy five litres of petrol at a cost of $2.10 per litre, or five litres of petrol at a cost of $2.35 per litre, the excise still takes 22.1 cents for each litre.

In addition to the excise, you also pay GST, which is 10 per cent of the fuel’s retail price. 

 

A man refuelling his vehicle at a petrol station

The fuel excise cut will not guarantee cheaper fuel long-term. Photo: Getty

What happens to money raised by the fuel excise?

Funds from the excise go to the federal government (unlike licence and registration fees which go to state governments).

Following the announcements on Budget Night 2022, the Federal Government is forecast to collect $66.67 billion in vehicle taxes and net fuel excise over the next four years. Of that, $13.91 billion is forecast to be received in 2022-23, and will raise to $16.65 billion in 2025-26. That’s not a small amount of money. So where does it all go?

Like other transportation taxes, this money then goes on to fund services and infrastructure throughout Australia, including roads, infrastructure projects and maintenance.

Analysis by the AAA shows that just 53 per cent of the fuel excise has been funnelled into dedicated transport projects over the past decade.

At the same time, the World Economic Forum’s analysis of global transport infrastructure shows Australia’s ranking fell 20 places in the four years to 2019, from 18th to 38th and we now trail countries such as India, the Dominican Republic, and Azerbaijan.

Does this mean the price of fuel is going down?

The first and foremost thing to keep in mind about the cut to the fuel excise, is that while you may save 22.1 cents at the bowser, this doesn't change the underlying cost of fuel which will still rise or fall depending on many factors.

As previously stated, the fuel excise is a cost on to of the retail price of fuel, so if the retail price increases or falls, the excise, albeit halved, will rise or fall with it. Roughly a quarter of the price of fuel in Australia is made up of taxes – the fuel excise plus GST.

But depending on other factors that influence the price of fuel – like a rise in the international price of oil – the savings made from cutting the excise could be negated.

The final price of fuel is also set by retailers – that is, service stations. For the cut to the fuel excise to be felt by consumers, service stations will have to pass on the cut – something ACCC has said it will be monitoring.

While the excise cut came into effect from midnight on March 29, it may take time to see the price of petrol actually go down as the fuel excise has already been paid by service stations on the fuel sitting in their tanks. 

 

The M1 road in Melbourne

The excise cut will result in the Federal Governmnet having $2.65 billion less to invest in infrastructure. Photo: Getty

The cause and impact of the fuel excise cut

There has been pressure on the Federal Government to reduce the fuel excise due to the rising cost at the bowser, and the rising overall cost of living in Australia.

Meanwhile, other countries around the world including New Zealand, Canada and the United Kingdom have all taken similar measures to ease the cost of fuel – signifying that this is a problem felt around the world.

The price of fuel in Australia is affected by a few things, including the international price of crude oil.
Due to the political tensions in Europe and OPEC resisting calls to increase supply, the price of oil has increased to record-highs, consequently causing the price of petrol at the bowser to skyrocket over the past 6 months.

While the halving of the fuel excise will give some temporary pain relief, it will ultimately have little impact on the sustained rise or decline of fuel prices.

Cutting the fuel excise also means a loss in revenue collected by the federal government, which in turn means less investment for services and infrastructure projects in subsequent years.

Though the AAA has welcomed the Federal Government’s $9.1 billion investment during 2022-23 toward road funding projects, the $2.65 billion lost from the fuel excise cut is likely to impact transport funding in future.

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