The 52 Cent Question: Why Canberra Won't Touch Fuel Excise and Whether It Even Should
Every time you fill up your car right now, you're handing the federal government roughly $26 in tax on a 50 litre tank. With petrol sitting above 230 cents a litre in most capital cities, that's a contribution most motorists would rather not be making. So when the Treasurer stood up last week and flatly ruled out touching the fuel excise, plenty of Australians wanted to know: why not?
It's a fair question. And the answer is more complicated than either side of politics wants to admit.
What the excise actually is
The fuel excise is a flat tax of 52.6 cents on every litre of petrol and diesel sold in Australia. It gets adjusted twice a year in line with the Consumer Price Index, which means it quietly creeps up every February and August. Back in 2001, it was frozen at 38.1 cents. Twenty five years of CPI indexation later, it's nudged past the half dollar mark.
The original idea was straightforward: the excise would fund roads. Build them, maintain them, keep Australia moving. The reality? Research from the Parliamentary Budget Office found that only 57 per cent of excise revenue in the decade to 2022-23 actually went back into roads and public transport. The rest disappeared into general revenue. So when politicians tell you it's a road funding mechanism, they're telling you roughly half the truth.
Right now, with petrol averaging 234.1 cents per litre across Sydney, Melbourne, Brisbane, Perth and Adelaide, that excise represents about 22 per cent of what you're paying at the bowser. The rest is crude oil costs, refining margins, retail margins, and GST. But 52.6 cents is 52.6 cents, and when your weekly fill is already pushing past $115, every cent matters.
The political battle lines
Treasurer Jim Chalmers was blunt about it on March 4: "That's not something that we've been considering." No wiggle room. No "we're monitoring the situation." Just a flat no.
The government's reasoning, when you strip away the talking points, comes down to something economists would recognise immediately: you don't stimulate demand when supply is the problem. With the Strait of Hormuz effectively closed since early March, roughly one fifth of the world's seaborne oil has been disrupted. Australia has about 36 days of petrol supply and 34 days of diesel. Cutting the price at the pump when there physically isn't enough fuel coming in would be, to put it bluntly, pouring accelerant on a supply fire.
Opposition Leader Peter Dutton sees it differently. He's pitched halving the excise for 12 months, dropping it from 52.6 cents to about 26 cents per litre. The price tag: $6 billion. He reckons a one car household would save around $14 a week, or about $700 across the year. It's a direct echo of what the Morrison government did in March 2022, when it slashed the excise from 44.2 cents to 22.1 cents for six months.
And this is where it gets interesting, because we actually know how that experiment played out.
The 2022 playbook, and what it actually delivered
When Scott Morrison halved the fuel excise four years ago, petrol had spiked after Russia invaded Ukraine and global oil markets went haywire. The cut was supposed to deliver immediate relief. In some places, it did. The ACCC found significant price falls in most locations within the first six weeks, with the cut largely passed through to consumers.
But not everywhere, and not equally.
In Sydney's western suburbs, wholesale cost reductions flowed through to pump prices within about two weeks. Out in the eastern suburbs and on the Northern Beaches? The price drops were noticeably slower. Regional areas saw even more patchy results. The excise cut was uniform, but the savings weren't.
Researchers at the e61 Institute crunched the numbers and found something the politicians on both sides prefer not to mention: the cut disproportionately benefited higher income households who drove more and owned bigger vehicles. Outer suburban households in the major capitals saved around $450 over 12 months. Inner city households, who tend to drive less and use public transport more, saved about $270. Regional drivers, the ones arguably most in need, saw mixed results because local competition (or lack of it) determined whether servos actually passed the savings on.
There's another wrinkle. When the excise went back to full rate in September 2022, the political pain the Albanese government expected never really materialised. Why? Because wholesale costs had climbed so much during the six month cut that prices were already elevated. Motorists never got used to genuinely cheap petrol, so the restoration didn't feel like a sudden hit.
The lesson: excise cuts can work as short term pain relief. But they're expensive, they're blunt, and the benefits leak unevenly across the country.
Why 2026 is different from 2022
Here's what makes the current situation fundamentally different from the Ukraine spike four years ago. In 2022, supply disruptions were real but manageable. Russian oil found new buyers in India and China, and global production adjusted within months. The price spike was sharp but temporary.
This time, the Strait of Hormuz closure is a physical chokepoint. About 20 per cent of the world's oil transits that narrow waterway. Alternative routes exist, mainly piping oil overland or shipping around the Cape of Good Hope, but they add weeks to delivery times and can't replace the volume quickly.
Australia is uniquely exposed. We import about 90 per cent of our refined fuel. We have no strategic petroleum reserve comparable to the US or Europe. The 800 million litres the government released from domestic reserves in mid March sounds like a lot until you realise Australia burns through about 160 million litres of fuel every single day. That's five days of breathing room.
Over 107 fuel stations across NSW have already experienced diesel shortages. Regional servos are rationing. The National Farmers' Federation has warned food prices could jump by as much as 50 per cent if diesel supply tightens further, because everything from tractors to refrigerated trucks runs on it.
In this environment, cutting the excise doesn't just cost $6 billion in forgone revenue. It actively risks making the shortage worse by encouraging consumption at exactly the moment the country needs people to be more careful with what's available. That's the argument Chalmers is making, even if he won't spell it out quite that directly.
What this actually means for your wallet
So where does this leave you standing at the bowser in Parramatta or Dandenong or Ipswich, watching the numbers spin past $120 on a standard fill?
The honest answer is that neither side of politics has a clean solution. The government's approach, releasing reserves, relaxing fuel quality standards to unlock an extra 100 million litres a month, authorising fuel companies to coordinate supply, is about managing scarcity. Dutton's excise cut would put money back in pockets but wouldn't put more fuel in tanks.
For the average motorist filling up 35 litres a week, halving the excise would save about $10.13 a week. That's real money, about $525 over a year. But if the supply situation deteriorates and prices climb another 20 or 30 cents regardless, you've burned through $6 billion in government revenue and still ended up paying more than you are today.
The Australian Automobile Association has long argued the excise system needs fundamental reform, not temporary fixes. With electric vehicle uptake growing and fuel excise revenue projected to decline over the next decade, the long term trajectory points toward some form of universal road user charge anyway. Every temporary cut kicks that conversation further down the road.
The bigger picture
What's really being exposed here isn't a tax policy failure. It's a fuel security failure that's been building for two decades.
Australia closed its last major capital city refinery in 2021. We went from refining about half our fuel domestically in the early 2000s to importing virtually all of it. Successive governments on both sides talked about fuel security without actually building the reserves or refining capacity that would provide it.
The International Energy Agency recommends members hold 90 days of net oil import cover. Australia has been below that threshold for years. The government's Minimum Stockholding Obligation, introduced in 2022, was supposed to address this. But when the crisis hit, one of the first things Canberra did was reduce that obligation by 20 per cent to free up supply. The safety net got cut because it wasn't big enough to actually work as one.
Whether the excise drops or stays is almost beside the point when the deeper issue is that Australia left itself dependent on a single, fragile supply chain running through one of the most geopolitically volatile waterways on earth.
What to keep in mind
Compare prices before you fill. The spread between the cheapest and most expensive servos in any given suburb can be 20 cents or more, which on a 50 litre tank is $10, nearly the same as Dutton's proposed weekly excise saving. Tools like Petrolmate that track real time prices across Western Australia, Victoria, Queensland, and every other state can genuinely save you more than any tax cut.
Watch for price cycles. Melbourne and Sydney still run on roughly fortnightly pricing cycles. Filling at the bottom of the cycle can save 15 to 25 cents per litre.
Don't panic buy. The supply situation is tight but not dire. Panic purchasing is what turns a manageable shortage into an actual crisis, as Perth learned during a brief diesel scare earlier this month.
And keep an eye on Canberra. The excise debate isn't going away. If prices stay above 230 cents through April, the political pressure on the government to do something visible will only intensify. Whether that something actually helps at the bowser is another question entirely.
The fuel industry rarely makes simple headlines, but when 52.6 cents of every litre becomes a political football, everyone's suddenly paying attention. About time, really.
