The Full Petrol Tax Returned This Month. The Price Spike Didn't

Something odd happened at Australian servos over the past fortnight. On 3 August the federal government restored the full fuel excise, the biggest single tax increase on petrol in years, worth almost 19 cents a litre once GST does its work on top. And yet by last week the competition watchdog was reporting that price rises in most parts of the country came in smaller than the tax increase itself. Here's what's really going on.

Five months of emergency relief, unwound in stages

Quick recap if you tuned out over winter. When the conflict between the United States and Iran flared in March and shipping through the Strait of Hormuz got messy, global oil prices spiked and Canberra reached for the biggest lever it has. The government cut fuel excise by 32 cents a litre almost overnight, a move lifted straight from the Morrison government's playbook during the Ukraine invasion in 2022.

The relief was always going to be temporary. From 1 July the cut was halved to 16 cents. Then at midnight on 3 August the remaining 16 cents came back and the excise returned to full strength. Energy Minister Chris Bowen confirmed there would be no extension, with a blunt warning: "Hoarding fuel will not help the situation and it's dangerous, so there's no need to buy more."

What most people don't realise is that the excise didn't just return to where it was. It came back higher. Fuel excise is indexed to inflation twice a year, in February and August, and this year's August adjustment landed on exactly the same day the cut expired. The rate went from 52.6 cents to 53.7 cents a litre. Motorists copped the 16 cent restoration and a 1.1 cent indexation rise in a single stroke, and because GST is charged on top of the excise, the real hit at the pump works out to almost 19 cents a litre. A tax on a tax, as the motoring clubs have grumbled for decades.

So where's the spike?

The lead up had all the makings of a horror story. RACQ principal economist Ian Jeffreys told drivers to fill up before the change hit, average unleaded moved back above $2 a litre in the first days of August, and forecasts of $2.20 for unleaded and $2.60 for diesel did the rounds.

Then something interesting turned up in the data. The ACCC, which shifted from quarterly to weekly price monitoring when the conflict began, released its 23rd weekly report on 14 August. The key line: "Increases in average retail petrol and diesel prices in most locations have been less than the excise change, with decreases in international fuel benchmark prices also influencing retail prices."

Translation: the tax went up nearly 19 cents, but pump prices in most places rose by less than that, and by the second week of August they were easing.

Why? Because tax is only one ingredient in your litre. Global oil, which spent stretches of this conflict above US$100 a barrel, has drifted down from its worst levels, and the Singapore refined fuel benchmarks that actually set Australian wholesale costs fell at just the right moment. By 12 August, average petrol prices across the five largest cities were a full 56 cents a litre below their 31 March peak. The excise returned into a falling market, and the falling market swallowed a decent chunk of it.

To put this in perspective, we've seen this movie before. When the Morrison era excise cut ended in September 2022, plenty of commentators predicted an overnight jump of about 25 cents. It never arrived on cue. Retailers sold through cheaper fuel already in their tanks, city price cycles masked the rise for a week or two, and international prices happened to be sliding. History has repeated almost beat for beat.

Don't pop the champagne just yet, though. Compared with prices before the conflict began, petrol is still about 30 cents a litre dearer and diesel a punishing 65 cents dearer. Anyone running a ute, a truck or a tractor has been wearing the worst of this since March, which is why keeping an eye on diesel prices matters more than it has in years.

The watchdog on the forecourt

The ACCC made an unusually pointed statement as the excise returned. Commissioner Anna Brakey said the regulator "expects that fuel retailers will not attempt to take advantage of this increase in excise" and flagged that it would pursue false or misleading claims about price movements, along with any conduct that looks anticompetitive.

Going back a few decades, this dance between Canberra and the servos has played out before. John Howard froze excise indexation at 38.1 cents in 2001 after a voter revolt over petrol prices, a freeze that lasted 13 years before the Abbott government quietly restored indexation in 2014. Governments have learnt the hard way that fuel tax is politically radioactive, which is exactly why this year's relief came with a hard end date and a watchdog standing on the forecourt.

And where does the money go? Contrary to popular belief, fuel excise isn't quarantined for roads. It flows into general revenue, and the Australian Automobile Association puts the net annual take north of $20 billion. By international standards Australia sits in the middle of the pack. British drivers pay roughly a dollar a litre in fuel duty plus 20 per cent VAT on top, while American motorists pay a federal petrol tax equivalent to around 7 Australian cents a litre.

What this means at your local bowser

Break down a $2.20 litre of unleaded and the maths looks like this: 53.7 cents of excise, roughly 20 cents of GST, and the rest split between the international price of refined fuel, shipping, and wholesale and retail margins. About a third of what you pay is tax before your servo makes a cent.

The practical upshot for your wallet is that timing now matters more than the tax does. The excise is baked in and it isn't going anywhere, but the price cycles in Sydney, Melbourne, Brisbane and Adelaide still swing 20 to 40 cents a litre from trough to peak, which dwarfs the excise change entirely. Filling up at the bottom of the cycle saves you more than the excise cut ever did. Perth runs its own weekly rhythm, and Tuesday is reliably its cheapest day.

The ACCC's own advice is to "use fuel price apps and websites to compare prices at different retail sites before filling up". Checking unleaded petrol prices before you commit to a servo is genuinely worth real money, our guide to the best time to fill up covers cycle timing in each capital, and the price trends page shows how the excise return actually flowed through, week by week, in one chart.

The bigger picture

Behind the scenes, this episode has sharpened a debate Canberra has been dodging for years. Every electric vehicle sold erodes the excise base a little further, and Treasury knows its $20 billion river is slowly drying up. Industry contacts tell me road user charging, the idea of paying per kilometre rather than per litre, is creeping back up the agenda now that the High Court has ruled state based EV charges out of bounds. The next time fuel tax dominates the headlines, the argument might not be about the rate at all, but about who pays it.

A few things worth keeping in mind:

The fuel industry rarely makes headlines until prices spike, but the quiet fortnight after this tax hike tells you more about how your petrol price really works than any spike ever could. Keep an eye on this space.