For the past five months, Australians have been spared the glaring brunt of exorbitant petrol prices as the country faces a cost of living crisis.
In an attempt to relieve motorists of the rising prices – having passed $2 a litre in every major city in the country – the previous Coalition government implemented a six-month fuel excise cut.
The rising prices were largely due to Russia’s invasion of Ukraine placing downward pressure on supply – and upward pressure on people’s wallets at the bowser.
But the fuel relief that was afforded to Australians is soon to expire at the end of September.
As the end of cheaper fuel begins to loom, here are some key questions answered about the excise cut and what kind of price hike Australians should be bracing themselves for.
What even is fuel excise?
Fuel excise is a form of tax that Australian motorists pay when they purchase fuel. The money funded contributes towards the maintenance and development of our roads and infrastructure.
In Australia, motorists pay 44.2 cents for every litre of fuel they buy.
Why did the government announce an excise cut?
Early this year, people around the world began to experience the knock-on effects of COVID-19 supply chain issues, as well as rising fuel prices due to the Russian invasion of Ukraine.
As a federal election was looming, a spike in March’s inflation figures and a price rise in oil and basic household items triggered the former government to announce a cut in the amount of fuel excise motorists pay.
So, from midnight of 28 March until 28 September, Australia’s fuel excise was halved to 22.1 cents a litre.
The national average of petrol and diesel prices has swayed after the fuel excise cut was announced. Source: SBS News
Senior lecturer at Macquarie University’s business school Lurion De Mello said that it was both a swift and political approach to relieving stressed Australians who were about to head to the polls in May.
“I think it was partly a political move, but also it had to be a quick action. Any other avenue … targeted towards low income would have taken far too long to implement,” Dr De Mello told SBS News.
What are the reasons raised to extend the cut?
Inflation and interest rates have only picked up since the fuel excise cut was announced – and it’s expected to get worse this year before it gets better.
Mortgage prices have risen after the Reserve Bank of Australia And inflation hit 6.1 per cent – – and the government is predicting a 7.75 per cent peak at the end of the year.
Grattan Institute’s city programs director Marion Terrill said that many Australians have felt the strain of the increased cost of living – and some would hope the temporary fuel relief would last longer.
“There’s certainly plenty of pressure on household budgets, and I think that’s been the motivation behind this fuel excise, but the problem is a temporary cut has to come to an end at some point unless you make it a permanent cut,” Ms Terrill said.
Why is the government insistent on ending the relief?
Despite some calling for the fuel excise to be extended – and expected to rise even further at the end of the year – Treasurer Jim Chalmers said it’s not an option.
“We’ve tried to be upfront with people and say they shouldn’t expect that petrol price relief to continue forever,” Mr Chalmers told Sky News last month.
According to the federal budget, the six-month excise cut has taken a $3 billion hit on the economy – and Mr Chalmers says the government can’t afford to extend it past September.
Treasurer Jim Chalmers has reiterated the fuel excise cut will end on 28 September despite calls for it to be extended. Source: AAP / Mick Tsikas
And it’s not an unwise decision, according to Ms Terrill.
“I think it is a very costly item on the budget. The budget is in a perilous state. You can understand why the government is very motivated to honour the end date of this asset by the previous government,” she said.
Dr De Mello said it was important to remember that the excise cut was announced as temporary, and should remain that way.
“I think the previous government actually made the decision to end the fuel excise at the end of September because they kind of put a bet that oil would have steadied and in fact, oil has gone below US$100 a barrel,” he said.
“If oil prices remain low, I think there’s no need for the fuel excise [cut] to be continued.”
What could I expect to pay?
Experts say we can’t be sure what prices will look like come by the end of September due to the unpredictable nature of crude oil prices that largely dictate how much motorists will pay at the petrol station.
“One of the things about the price of oil is that it’s very volatile,” Ms Terrill said.
But crude oil prices have dropped to the lowest levels they have been since the war in eastern Europe. or economists, it’s a positive sign for fuel prices in the future, according to Dr De Mello.
“It looks like more oil is going to be coming onto the market and that’s definitely going to keep that downward pressure on petrol prices,” he said.
But when the fuel excise cut ends, there’ll be a 22.1 cent increase on every litre. With the sheer unpredictability of oil prices and Australia’s fuel cycle, Dr De Mello said petrol could go back up to $2.30 a litre towards the end of the year.
What are some alternatives to help Australians save money?
Ms Terrill said that the federal government has an opportunity to target the cost of living crisis in a more strategic way that could assist Australians who need it most.
“If your objective is cost of living relief, this is probably not the best way to deliver it, and that’s because some people on low incomes who are on tight budgets don’t drive and some people who do drive are not on low incomes or tight budgets,” Ms Terrill said.
She recommended tax cuts or additional boosts to existing social welfare payments to provide those struggling with more autonomy to purchase more essential goods, such as groceries and rental prices.
“If you give people their own money, they can choose how best to spend it for themselves.”
In the meantime, though. Dr De Mello has one piece of advice he believes is critical for Australian motorists as the fuel excise cut expiry date arises.
“I think the biggest thing that motorists can do right now is use their fuel apps,” he said.
He said downloading applications available on smartphones that compare fuel prices in nearby petrol stations can allow them to fill up smarter.
“If [fuel] is really hitting [people’s] pockets, use the apps to shop around and try to get the best deal, and simply boycott petrol stations that are keeping the prices high.”