Peter Dutton’s pledge to halve the fuel excise has faced significant backlash from economists, who warn that the policy is a short-term political manoeuvre that would disproportionately benefit wealthier Australians and fail to address the real economic challenges facing the country.
On Thursday, the opposition leader promised to reduce petrol prices by 25p per litre for one year if the Coalition wins the federal election. This promise comes as both major parties compete for voter support, with cost of living at the forefront of the campaign. Dutton’s plan follows his decision not to match the Albanese government’s proposed tax cuts, which would offer modest weekly savings of around £10.
Dutton stated that cutting the excise from 50.8p to 25.4p per litre would save an average household £7 per tank, costing the government £3 billion in lost revenue. However, economists caution that this measure would worsen the nation’s budget deficit, which is projected to remain in the red for the next decade.
Shane Oliver, Chief Economist at AMP, criticised the plan as “short-sighted” and argued that such temporary measures distract from the need for comprehensive tax reform in Australia. He stressed that these quick fixes delay essential reforms, leaving them for future governments to address. Furthermore, Oliver pointed out that halving the excise would undermine its original purpose and could be difficult to reverse in the future.
Revenue from fuel excise contributes to funding infrastructure projects in states and territories, but cutting it would limit these funds, particularly for road maintenance. This was the case when the Morrison government halved the excise in March 2022, in response to rising fuel prices caused by the Russia-Ukraine conflict and the upcoming federal election. However, Oliver believes this time there is no compelling reason for such a measure.
Recent data from the NRMA shows that the average price for regular unleaded fuel in Sydney was £1.03 per litre earlier this week. Under Dutton’s plan, the price would drop to around 89p.
A Policy that Favors the Wealthy?
Alison Reeve, a climate and energy expert at the Grattan Institute, criticised the excise cut as a poorly targeted policy, benefiting wealthier households more than those in need. Research by the Grattan Institute suggests that 43% of the benefits from fuel excise reductions would go to the wealthiest third of Australians.
Reeve also noted that the policy would reduce the contribution of heavy trucks and buses—responsible for more than 98% of road wear and tear—to road maintenance funding. As a result, the government would have to find additional sources of revenue for infrastructure projects while collecting less from the excise.
She also warned that cutting the excise would discourage people from switching to fuel-efficient or electric vehicles, potentially increasing emissions and leaving drivers vulnerable when fuel prices inevitably rise again.
Economic Impact of the Excise Cut
While the excise reduction might offer temporary relief, Oliver argued that it would have limited impact on long-term inflation. Although it could reduce headline inflation by about 0.45 percentage points, the Reserve Bank is likely to disregard this effect, focusing on more reliable measures of underlying inflation that exclude large price fluctuations.
In essence, Dutton’s fuel excise cut is seen by many experts as a politically motivated move that provides little benefit to the economy or the environment in the long run. While it may temporarily reduce fuel costs for some, it is unlikely to provide a meaningful solution to Australia’s pressing fiscal and environmental challenges.
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