Fifty Two Cents of Your Fuel Bill Goes Straight to Canberra and Nobody Can Agree What to Do About It
Every time you fill up right now, roughly a quarter of what you're paying has nothing to do with oil prices, shipping costs, or refinery margins. It's tax. And with petrol sitting around $2.38 a litre nationally and diesel north of $3 in plenty of places, the 52.6 cents per litre the federal government skims off the top through fuel excise has become the most politically charged number in Australian politics.
Yesterday the Coalition formally called for an immediate halving of the fuel excise for three months. Five crossbench independents want it suspended entirely. The Albanese government won't touch it. Everyone reckons they're right, everyone reckons the other side is reckless, and meanwhile you're standing at the bowser watching the dollar figure spin faster than it has in living memory.
So who's actually got the right answer? Turns out it's more complicated than any of them are letting on.
What the Coalition Is Proposing
Opposition leader Peter Dutton and Nationals leader Matt Canavan stood outside a Canberra servo this week where diesel was hitting $3.16 and unleaded nearly $2.50. Their pitch: halve the excise from 52.6 cents to 26.3 cents for three months. That drops pump prices by roughly 25 cents a litre immediately. Canavan reckons it could save a two car family up to $50 a week.
The price tag? About $1.5 billion. And here's where it gets spicy. They want to pay for it by axing the FBT exemption for electric vehicles, pausing home battery subsidies, and cutting green hydrogen funding. In Canavan's words, real relief for real Australians, not subsidies for inner city Tesla drivers.
It's a clean political line. Whether it's good policy is another question entirely.
We've Done This Before
Australians with decent memories will recall the Morrison government did almost exactly the same thing in March 2022. Russia invaded Ukraine, oil prices spiked, and Josh Frydenberg halved the excise from 44.2 to 22.1 cents per litre for six months. Cost the budget around $3 billion (some estimates put it closer to $6 billion once you account for the full flow on effects and the six month extension).
Did it work? Sort of. Filling up was genuinely cheaper for those six months. A family running two cars and filling weekly saved about $700 over the period. But economists weren't impressed. The Economic Society of Australia polled 46 leading economists at the time. Not a single one thought it was good policy.
Their reasoning was straightforward. Cutting the price of fuel increases demand for fuel. During a supply crunch, that's the opposite of what you want. It also disproportionately benefits people who drive the most, and people who drive the most tend to be wealthier households with multiple cars.
Researchers at The Conversation recently crunched the numbers on the current proposal. An inner city household in Sydney or Melbourne would save about $270 over twelve months. An outer suburban household in Penrith or Frankston saves about $450. Regional Australians in places like Ballarat or Bathurst average around $410. That's real money, but it's not the $50 a week headline figure that gets thrown around.
The Crossbench Wildcard
Five independents, led by Bob Katter, Andrew Wilkie, Rebekha Sharkie, Andrew Gee, and Dai Le, have gone further than the Coalition. They want the 52.6 cent excise suspended entirely. But they've also bolted on something more interesting: a structural push for ethanol blended fuels and biodiesel, arguing Australia needs to stop importing 90 per cent of its refined fuel and start producing alternatives domestically.
Katter has been banging this drum for decades, but the current crisis gives it genuine urgency. When your country holds 36 days of petrol supply and the Strait of Hormuz is effectively closed, "energy independence" stops being an abstract talking point and becomes a practical question about whether trucks can deliver groceries next month.
The government hasn't engaged with the ethanol proposal in any meaningful way. That's a missed opportunity, regardless of what you think about excise cuts.
Why Albanese Won't Budge
The Prime Minister's position is essentially: we're not making petrol cheaper by making electricity more expensive. Energy Minister Chris Bowen pointed out that the Coalition wants to fund excise relief by gutting the very programs that reduce household power bills. He called it a zero sum game.
There's political calculation here, obviously, but there's also a genuine policy tension. The fuel excise currently delivers about $7.3 billion a year from petrol and $17.6 billion from diesel to federal coffers. That money goes into consolidated revenue, not a hypothecated roads fund (the formal link between excise and road spending was severed back in 1992, which is something most people don't realise). On average, only about 54 per cent of excise revenue actually makes it back to road and transport projects.
Cutting or halving the excise doesn't just affect the fuel budget line. It punches a hole in general revenue that has to be filled somewhere, or not filled at all.
How Australia Compares
Here's something worth knowing. Despite how painful things feel right now, Australia's fuel tax is relatively low by developed world standards. Compared to other OECD countries, our 52.6 cents per litre is modest. The UK charges the equivalent of roughly $1.05 per litre in fuel duty. Germany sits around 90 cents. Even New Zealand takes more per litre than we do.
That doesn't make $2.38 a litre feel any better when you're filling up the ute in Darwin or the family car in Perth. But it does put the "Australia is being taxed to death on fuel" rhetoric in perspective. The crisis isn't about tax. It's about supply. And cutting the tax doesn't create a single extra litre of petrol.
What This Actually Means at the Bowser
Let's be practical. If the excise were halved tomorrow, you'd save about 25 cents a litre. On a 60 litre tank, that's $15 per fill. Do that weekly and it's $60 a month. Meaningful, yes. Life changing? Probably not, given that the underlying price has jumped 50 cents since late February.
The bigger issue for most households in Brisbane, Adelaide, and right across regional Queensland and New South Wales isn't really whether the excise drops by 26 cents. It's whether fuel stays available at all. Six hundred service stations have already run dry on at least one fuel type. The government has released 800 million litres from reserves and relaxed fuel quality standards to squeeze out an extra 100 million litres a month (allowing sulphur levels five times higher than normal, which is its own story).
An excise cut might ease the sting, but it doesn't fix the underlying supply problem. If anything, cheaper fuel encourages more consumption at precisely the wrong time.
The Elephant in the Room
There's a longer term question nobody in Canberra is keen to address openly. The fuel excise is a declining revenue source. EV sales hit 11.8 per cent of new car registrations recently, and the government is actively designing an EV road user charge set for introduction around 2028. Every electric car sold is one less car paying excise.
The Parliamentary Budget Office projects that fuel excise revenue will peak within the next few years and then begin a structural decline. Cutting it now, even temporarily, accelerates that decline and makes the eventual transition to distance based road pricing even more politically fraught.
This is the conversation Australia needs to have but keeps avoiding. How do we fund roads when fewer cars burn petrol? How do we provide relief during price shocks without creating perverse incentives? And who should bear the cost of a fuel supply chain that was always going to be tested by exactly this kind of geopolitical disruption?
The Practical Takeaway
Right now, you can't control Canberra's decisions on excise. But you can control how you respond to $2.38 petrol.
Use the Petrolmate price map to find the cheapest stations near you. Price gaps of 30 to 40 cents between servos in the same suburb are common right now, and that's worth more than any excise cut. Fill up earlier in the price cycle if you're in a city that still runs them (Sydney and Melbourne particularly). Consolidate trips. And if you're genuinely weighing up an EV, the maths have shifted dramatically: charging costs roughly 3 to 6 cents per kilometre versus 12 to 18 cents for petrol.
The excise debate will grind on through the May budget and beyond. Politicians will keep arguing about who cares more about your hip pocket. But the fuel you put in your car next week? That's something you can actually optimise right now.
