Australian household budgets are groaning under the weight of record-high petrol prices, prompting many to seek answers from the Federal Government.
As the price of regular unleaded fuel exceeds $2 a litre, some have called for the government to slash its fuel excise, the primary tax placed on the sale of every drop of petrol.
But will this really bring down petrol prices? And how does the fuel excise actually work?

Let’s start from the beginning. What is the fuel excise?

Put simply, the fuel excise is a tax placed on every litre of petrol sold in Australia.
It doesn’t matter where you buy your petrol – or even if you’re buying unleaded 91 or unleaded 98 premium – the fuel excise is the same.
As of February 2022, the fuel excise is set at 44.2 cents per litre.
Some motorists are changing their behaviours to avoid using their cars while prices are high. (Dylan Coker)

Wow that sounds like a lot. So how much fuel excise am I paying on a tank of petrol?

Let’s use whole numbers to make things easier – obviously the amount of petrol a car can carry depends on a number of variables.
If petrol is selling for $2 a litre, 44.2 cents of that is the tax of the fuel excise.
If you were to fill up a 100-litre tank – costing you $200 – you’d be paying $44.20 in fuel excise.
With petrol sitting at $2 a litre, it’s a little over 20 per cent of your fill up price that you’re paying in fuel excise.
Just a side note: while fewer cars are running on liquefied petroleum gas (LPG) these days, LPG’s fuel excise is taxed at just 14.5 cents per litre.
The fuel excise is the same on all grades of petrol at 44.2 cents per litre. (AAP)

Is that the only tax we pay on a litre of fuel?

GST – or the Goods and Services Tax – is also applied to fuel at the standard rate of 10 per cent no matter what the per-litre price is.
When you combine the fuel excise and GST, 30 to 40 per cent of every litre of fuel is spent on taxes.

If taxes make up left of half of the price of petrol, then where does the rest of the price come from?

Business costs and profit margins.
Petrol retailers are not government-funded organisations – they too need to be a profit-making exercise.
Retailers need to factor in the wholesale price of fuel, which they buy as well as business costs such as (but not limited to) storing fuel, transporting it around the country, running stations, paying wages and paying rent at stations.
Two Nationals MPs called on the federal government to cut the fuel excise as petrol prices continue to climb to more than $2 a litre. (Supplied)

What does the government spend the fuel excise on?

The fuel excise is collected by the Federal Government. It is spent on constructing and maintaining roads in Australia.
By buying fuel, Australian motorists are essentially topping up the Federal budget used to build and maintain roads infrastructure.
Vehicle registration fees and driver’s licence fees are collected by state and territory governments.

Should the Federal government scrap the fuel excise altogether to make petrol cheaper?

The NRMA doesn’t think so.
“The excise is there to raise money to pay for roads, to provide the financial support to state governments and councils so that they can maintain a safe and world-class road network,” said NRMA spokesperson Peter Khoury.
“We can either have funding for roads – or we can cut the excise. We can’t have both.”
Mr Khoury said while motorists desperately needed sustained relief from high petrol prices, it was the price of oil that needed to fall to bring meaningful change to household budgets.
The fuel excise is used to pay for and maintain critical road infratsructure. (AAP)

If the tax isn’t to blame, then what’s causing these high petrol prices?

Fundamentally, the price of a barrel of oil is causing fuel prices to rise.

What’s causing oil prices to rise?

Well, that’s a barrel of very different coloured fish. The price of oil is all about supply and demand – the more people want it, the more expensive it becomes.
If there’s not enough oil to go around, well that will make it more expensive too.
Russia has invaded Ukraine and major oil companies such as BP and Shell have pulled out of the country. This is reducing the supply.
But the oil market was already tight. As the CEO of Australian energy advisor firm EnergyQuest Graeme Bethune explains, the world’s COVID rebound was already placing extraordinary demand on oil producers.
“The oil market was very tight even before the invasion. COVID smashed oil consumption, oil prices and investment in supply in 2020. There is also a growing global consensus about the need to reach net zero by 2050 and therefore that peak oil demand is imminent and there is no need for further exploration,” Mr Bethune said.
“That has all discouraged investment in supply. Since 2020 oil demand has roared back with the post-COVID recovery but even OPEC is unable to achieve its production targets. That has all put pressure on prices.
“Then, on top of that there is all the uncertainty created from the Ukraine situation and the Russian invasion.”