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Budget 2022: Fuel tax slashed by 50 per cent

·2-min read
Australian cash and petrol prices above $2 a litre.
The Federal Government has confirmed a temporary cut to the fuel excise tax. (Source: Getty)

The Federal Government has halved the fuel excise tax for six months in the 2022 Budget to reduce the cost of petrol for Australian motorists.

This means the amount of tax drivers pay at the pump will be cut to 22.1 cents a litre, from 44 cents per litre.

“A family with 2 cars who fill up once a week could save around $30 a week or around $700 over the next 6 months,” Treasurer Josh Frydenberg said in his budget speech.

“Whether you’re dropping the kids at school, driving to and from work or visiting family and friends, it will cost less.”

Frydenberg said the competition watchdog will monitor retailers to make sure these savings are passed on in full.

He assured the temporary reduction in fuel excise will not come at a cost to road funding, which will receive $12 billion spent in the coming year.

Motorists can expect to see the lower excise rate to flow through to the majority of service stations within a couple of weeks as stations replenish their stocks.

These measures are forecast to cost the Government $3 billion.

It’s the first time the tax had been slashed 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.

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.

Not everyone agrees to the fuel tax cuts

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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