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Budget 2022: Why petrol will be much cheaper within days

·3-min read
Cars driving past petrol station with sign saying fuel is over $2 a litre.
We'll hear more about changes to the fuel excise tax when the 2022 Budget is handed down tomorrow. (Source: Getty)

The fuel excise tax will be cut, Treasurer Josh Frydenberg has confirmed, to alleviate rising petrol prices for motorists.

Frydenberg said on Sunday that the fuel excise tax would be temporarily lowered for about six months, according to the AFR, which would be the first time the tax had been whittled down since 2001 when then-PM John Howard halted fuel excise indexation in response to political pressures.

It then took the federal government 14 years to reinstate the tax, which cost the commonwealth budget around $42 billion.

The reduction or removal of the tax, which charges motorists 44 cents a litre, will be one of several initiatives in the 2022 Budget aimed at relieving cost-of-living pressures.

The average motorist paid about $775 in fuel excise in 2021, based on approximately 35 litres a week in petrol consumption

Fuel prices have spiked above $2 a litre, partly due to the conflict in Ukraine driving up oil prices. Some regions are reporting prices as high as $2.20 a litre, with some experts tipping prices to rise as high as $2.70 a litre.

The New Zealand government has also announced a temporary cut to its fuel excise and road user charges for three months in response to high fuel prices.

The changes were estimated to save Kiwis more than NZ$17 for a 60-litre tank of fuel.

Speaking to ABC radio on Monday, Australia’s Finance Minister, Simon Birmingham, would not provide further details on the tax changes but said the Government was “very conscious” of the short-term spikes in oil prices and the inflationary pressures from abroad.

“And so, we want to make sure that we respond carefully to those issues carefully because it's important that we don't add to those inflationary pressures,” Birmingham said.

“But we do recognise that Australians have cost-of-living pressures in their household budgets.”

Not everyone agrees it’s a good idea

Several economists have warned against cutting the tax, which is an established revenue stream that goes towards government spending on aged care, health, education and roads.

Economist Stephen Koukoulas said cutting the tax, even temporarily, would be "economic stupidity" as it would blow out the budget deficit further, which would need to be made up through other tax hikes.

Experts have also warned any kind of tax cut is extremely difficult to unwind, and that cutting the tax is a blunt instrument for relieving cost-of-living pressures that it’s not targeted to the people who need it most.

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