Reinstating the fuel excise: how much will petrol prices rise and why now? | Australian economy

Australians have been partly shielded from soaring fuel prices over the past six months by a cut to the fuel excise, introduced by the previous Coalition government.

But on 28 September the full fuel excise will be reinstated, with consumers warned prices will climb once again.

How much will petrol rise, how it will affect everyday life and why was it cut in the first place?

What is a fuel excise?

The fuel excise is the federal government’s fuel tax, with motorists earlier this year paying 44.2 cents to the government for every liter of fuel they buy.

The cash raised by the excise was once directly tied to road maintenance but that formal link ceased in 1992, with the money now going into general revenue.

Why was the excise cut?

As the cost of living rose in early 2022, the former Morrison government made the decision to halve the excise.

In late March, the fuel excise was halved to 22.1 cents a liter.

The decision was made with an election looming on 21 May and inflation beginning to spike. The war in Ukraine and supply chain issues caused by the Covid pandemic were affecting consumers.

The price of oil and basic household items rose, and the government felt pressured to alleviate some of these costs.

Why is it coming back?

There have been calls for the excise reduction to remain in place, as the cost of living crisis continues. But the federal treasurer, Jim Chalmers, has insisted the government would stand by the 28 September deadline. The new excise – indexed to CPI – will be 46 cents per litre.

“We’re under no illusions this will be difficult for people. It’s a difficult decision for us to take as well,” Chalmers has said.

The treasurer said the government couldn’t afford to extend the cut, which had cost $3bn. He said the 700m liters of fuel already “in the system” should prevent fuel prices from rising immediately.

“This is 700m reasons why the price should not shoot up by the full 23 cents on the night that the excise relief ends.”

The Albanese government will release its first budget in October, with the treasurer last week welcoming an improvement to the bottom line but still expecting a deficit “north of $30bn”.

How much will it increase petroleum prices?

Chalmers has noted the oil price has dropped since February but due to its unpredictable nature and the impending escalation of the war in Ukraine, it is hard to predict where prices go.

Graeme Bethune, the CEO of energy advisory firm EnergyQuest, said prices will probably increase once the excise returns to normal – but they have been dropping in recent weeks.

“Prices will likely go up by something close to the increase to the excise, which is about 22 cents – but that is with other things remaining the same,” he said.

“Other things are changing all the time. We’ve seen oil and international oil prices come down recently. There are a couple of reasons for that, including increasing fears of a global recession. The sanctions on Russian oil sales also haven’t stemmed sales, meaning supply has not dropped as much as forecast.

“[So] I’d rather not try and predict a number – there are bigger forces at work in the world.”

In a letter to major wholesalers and retailers a fortnight ago, the Australian Competition and Consumer Commission said it did not expect any “uncharacteristic or abnormal retail price increases in the days leading up to, on the day of, or after the reintroduction of the full rate of fuel excise”.

“The ACCC will be monitoring wholesale and retail prices closely and will not hesitate to take action where there is evidence of misleading or deceptive conduct, misrepresentation about the excise increase and retail prices, and anti-competitive behavior,” it said.

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