Explore our Progress 2050 Goal Tracker
Cost-of-living is front of mind for many Australians and the upcoming Federal budget looks to be shaping into a true election budget. With the price of unleaded petrol over $2.10 a litre, up from $1.65 in January, there are calls for the Federal Government to reduce the fuel excise, but is this a good idea?
What is an excise duty?
An excise duty is a commodity-based tax on goods such as alcohol, tobacco, fuel and petroleum products. Many countries tax retail fuel, including other OECD countries such as Canada, Germany, United Kingdom and the United States.
The historically stated objectives of excise taxation are to:
What is the reason for the fuel excise in Australia?
Historically, the main reason petrol and diesel excises are levied in Australia is to raise revenue.
In 2020-21 the Commonwealth Government collected $5.6 billion from petrol and $13.58 billion from diesel (noting a significant amount of diesel revenue raised is rebated for specific off-road uses). For comparison, tobacco generated $13.3 billion and alcohol $6.84 billion during this period.
Have previous governments changed the fuel excise rate?
The Hawke Government introduced CPI indexation of petrol and diesel excise rates in 1983, and this indexation generally occurs twice a year.
The Howard government temporarily froze the fuel excise indexation in 2001 as the GST was being introduced and the price of fuel went over $1 a litre. The Abbott Government re-introduced fuel excise indexation in 2014 (as part of an unpopular budget where there were significant cuts to a range of services). The current fuel excise is now at $0.442 per litre (see chart below).
What are the policy considerations of reducing the fuel excise?
Are there alternatives to changing the fuel excise?
Yes, there are better tools to reach the policy goals, whether that is how we raise revenue to fund roads, or other policy objectives such as:
In an environment of higher inflation and supply side pressures, there will be increasing calls on the budget to address cost-of-living pressures. In CEDA’s Budget Reset Paper, we are arguing that whoever forms government after the next federal election should reset the budget foundations so that the budget is better able to respond to the changing needs of the economy and community.
In the annual IMD World Competitiveness Yearbook released last week, our overall worst result was in entrepreneurship, where Australia is ranked 61 out of 63 countries. Australia also dropped from number 20 to 41 in terms of workplace productivity. When it comes to Australian business efficacy we rate poorly in terms of remuneration and compensation, international experience, employee training, skilled labour and working hours. It is little wonder, therefore, that our businesses are struggling to access the skills they need, writes CEDA CEO Melinda Cilento.
Read more Opinion article March 17, 2022Amid all the scrutiny of the Reserve Bank and calls for a review of the monetary policy framework, fiscal policy has been given a leave pass for now. This is despite an unprecedented COVID-19 shock, necessitating an extreme policy response involving negative real interest rates and $337 billion of direct government spending required to do the heavy lifting to preserve jobs and economic activity, writes Jarrod Ball in The Australian.
Read more Opinion article February 26, 2020Innovation and Science Australia Chair, Andrew Stevens, discusses the findings of Innovation and Science Australia's recent report, Stimulating Business Investment in Australia. He says that the innovation shortfall in Australian business is holding back the economy, and government needs to adjust its policy mix to support investment in the area.
Read more