Australia’s fuel excise is on the verge of reaching a significant milestone, nearing 50 cents per litre, thanks to the latest tax hike on petrol and diesel products imposed by the Federal Government. This increase results from the government’s practice of biannually adjusting the excise rate in alignment with the consumer price index (CPI), as determined by the Australian Bureau of Statistics. Though this indexing has been in place since its reintroduction in 2015, consumers already grappling with rising fuel costs are understandably concerned about its implications for future fuel prices.
Effective February 5, 2024, the fuel excise rate will climb from 48.8 cents per litre to 49.6 cents per litre. While an 0.8 cent increase may not seem dramatic, for those driving large SUVs with substantial 80-litre fuel tanks, this uptick translates to nearly $40 in additional excise costs per tank.
At the current national average retail price of 197.2 cents per litre, this means we are paying 49.6 cents per litre in fuel excise and an additional 17.9 cents per litre in GST, totalling roughly 67.5 cents per litre, or 34 percent of the average retail price, in federal government taxes. This substantial government share at the pump may seem significant, but it’s worth noting that this proportion has remained relatively stable over the past decade and is comparatively low when compared to other OECD countries.
Australia currently ranks third lowest among OECD nations in terms of fuel taxes, with Denmark leading the list as of the June quarter in 2023, where almost half of fuel prices are composed of taxes.
The latest fuel excise rate stands in stark contrast to March 2022, when the Morrison government made an unprecedented move by halving the fuel excise from 44.2 cents to 22.1 cents per litre for a six-month period. This decision was a response to the uncertainty created by Russia’s invasion of Ukraine, a geopolitical event that raised concerns due to Russia’s significant role in global oil production.
The fuel excise operates as a flat tax applied to every litre of petrol or diesel sold to Australian consumers. The revenue generated from this tax is earmarked for the maintenance and development of infrastructure and roads across the country.
It’s important to understand that the fuel excise is just one of the key factors influencing the prices displayed at petrol pumps. According to a spokesperson from the Australian Competition and Consumer Commission (ACCC), there are three primary components contributing to average retail petrol prices:
1. The international benchmark price of refined petrol, is influenced largely by international crude oil prices and the AUD-USD exchange rate.
2. Taxes, encompassing both the excise and the goods and services tax (GST).
3. Other associated costs and margins, encompassing wholesale and retail levels.
Beyond the fuel excise, the Goods and Services Tax (GST) is also imposed on the retail price of fuel, including the excise, at a standard rate of 10 percent. This has led many to argue that the fuel excise effectively becomes a ‘tax on a tax.’
Nonetheless, the fuel excise remains a substantial source of revenue for the Federal Government. According to the 2021–22 Federal Budget, the fuel excise was projected to collect $13.9 billion in 2022–23, with a further increase anticipated to $16.65 billion by 2025–26.
As the excise is levied at the refinery or fuel depot level, each time it experiences an increase, it is immediately and directly reflected in the prices consumers pay. However, in certain instances, consumers may witness some savings on fuel that was delivered before the excise hike took effect, potentially leading to competitive pricing strategies by retailers.