Some energy analysts are questioning the federal government’s temporary tax cuts on fuel, warning that lower prices will work against Australia’s rising need to conserve oil and hamper the push towards electrification.
The Albanese government has halved the excise duty on fuel for three months in order to provide some relief to Australians dealing with soaring petrol and diesel prices on top of existing cost-of-living pressures, and to reduce the impact on the consumer price index.
The excise is a flat fee on a litre of fuel, typically collected from manufacturers or importers. In place since Federation in 1901, it is one of Australia’s oldest taxes.
The federal government slashed the excise as fuel prices started to surge at the start of war in the Middle East. As well as its 26.3 cents-a-litre tax cut, states have funded an extra 5.7 cents off.
But after a momentary drop, diesel prices have already soared back to be almost where they were before the tax cuts, now touching more than $3.20 a litre nationally, according to the ABC’s analysis.
Should the diesel excise have been cut more than petrol?
Diesel is used to power machinery for a range of industries, including farming, trucking and mining. Some economists argue demand for it is “inelastic”, with sectors unable to easily cut back if prices rise.
As well as fuelling essential industries, almost 30 per cent of the motor vehicles on Australia’s roads are diesel, including some four-wheel drives, vans and utes.
Unleaded petrol, meanwhile, has significantly dropped since the excise cuts and remains at about $2.20 a litre. About 65 per cent of motor vehicles are petrol powered.
“If I had an opportunity to advise the government, I would have dropped the excise tax on diesel a bit more than on the petrol,” Lurion De Mello from Macquarie University’s energy markets centre said.
“Petrol is not the pain point. Diesel is the pain point.
“It’s a very concerning moment, not just for Australia, but globally.”
Deakin University energy governance specialist Samantha Hepburn shared concerns about the soaring cost of diesel and longer-term supply concerns.
“Any disruption in diesel supply or sustained high prices, as we are experiencing, will directly affect production capacity, increase operating costs and ultimately push up food prices,” she said.
“Farmers are making decisions about whether to proceed with crops, given the uncertainty of diesel allocations later in the year.
“In this sense, diesel has a more indirect but systemically important impact compared to petrol.
“So, arguably, the fuel excise settings may have been too focused upon politics and insufficiently focused upon economics and broader supply chain concerns.”
But Dr Hepburn said it was unclear whether further excise reductions would result in lower diesel prices and, if prices rose again, companies would be pocketing the excise cut.
“Overall, a tax cut can benefit both consumers and fuel retailers,” University of Melbourne economist Andy Wu said.
“Who benefits more depends on whether demand or supply is more inelastic.
“If supply is more inelastic than demand [highly constrained in the short run], a larger share of the tax cut may go to retailers rather than consumers.”
Extracted in full from: https://www.abc.net.au/news/2026-04-14/fuel-excise-cut-questioned-as-iran-war-continues/106559252
