Why you need to brace for rising petrol prices

Australian drivers are being warned to brace themselves for a jump in petrol prices come the end of September when the current reduction to the fuel excise is set to come to an end.

Introduced by the former Coalition government as part of the 2022/23 budget in March as a temporary measure to help reduce the impact of soaring petrol prices on motorists, the 22.1c/litre reduction is scheduled to finish on September 28.

But three in four Australians would like the cut to the fuel excise to be extended, a new survey conducted by CPA Australia has revealed.

43% of survey respondents were in favour of seeing the current 22.1 cent reduction kept on for a further six months, followed by 32% who said that the cut should be made permanent and 20% who believed that it should end in September.

Elinor Kasapidis, senior manager of tax policy at CPA Australia, says the survey results add weight to the argument that the excise cut should be extended, especially given the cost of living challenges so many households are facing at present.

"The fuel excise relief introduced earlier this year has provided some help for those struggling with cost-of-living pressures. The former Federal Government estimated that the decision reduced the cost at the pump by $30 a week for an average household.

"With inflation expected to continue to run hot, interest rates set to rise and energy bills soaring, there is a case for the relief to continue. Many households are running out of options to cut their expenses."

The case for ending the fuel excise cut

While an extension to the fuel excise cut would likely be met with approval from motorists, Treasurer Jim Chalmers has all but ruled out continuing the measure beyond September because of its impact on the budget.

"This is a collision, really, of the fiscal reality and the economic reality. That policy - that six-month petrol price relief that was in the last budget of the last government, which we supported - ends in September. Even that six-month relief costs about $3 billion," Chalmers told the ABC earlier this month.

"And so, to extend it for another six months, for example, would be another $3 billion. To extend it indefinitely would cost the budget a lot of money and we have to weigh all of these things up responsibly.

"We have to weigh up our priorities, and you can't do everything that you would like to do when you've got a budget which is heaving with a trillion dollars of debt."

The Australian Automobile Association (AAA), which was against the reduction in the fuel excise in the first place, told Money that it would welcome the excise being reinstated in full. However, AAA managing director Michael Bradley says that the government should ultimately look at replacing it altogether.

"The AAA wants 100% of fuel excise paid by motorists reinvested into land transport infrastructure. Therefore, the AAA supports the removal of the temporary cut to excise provided all excise raised is allocated to Commonwealth funding of land transport infrastructure.

"The AAA also wants the Commonwealth to recognise fuel excise is no longer fit-for-purpose and respond by determining how Australia can develop a fairer and more sustainable way of taxing motorists and paying for our roads, in the face of changing vehicle technology."

Has the excise cut had an impact?

As anyone who filled up their tank in March will likely remember, petrol prices were hitting $2.20/litre and even higher in some parts of the country before the temporary fuel excise reduction was introduced.

Since then, there's been plenty of fluctuation and some noticeable price reductions at times. As the ACCC notes, the excise cut has certainly played a part in helping ease the cost for consumers, but price drops have also been influenced by broader market changes.

"After the former government halved the fuel excise, we initially saw prices plunge," says Compare the Market spokesperson Chris Ford.

"Looking back, that seems like it was more to do with the easing of international benchmarks because that 22-cent cut really turned into more like a 60-cent cut by mid-April when our national retail average dropped to $1.56/litre. But by mid-June, prices had hit the same highs that we had seen before the reduction of the excise.

"Those have now come off. In the last few weeks, we've seen about a 35-cent drop in the national retail average which is now about $1.80/litre and there could still be some discounting to come in the next week or so, especially in Melbourne which is still quite high."

Where are petrol prices heading?

While Ford doesn't have a crystal ball, he says there a few factors that could continue to have a positive impact on petrol prices in the short term.

"What's happened in the last four weeks is that we've seen prices ease, though for slightly different reasons than the ones that led to the supply and demand pressures which helped push up oil prices earlier this year.

"There are now fears of a recession, specifically in the US, so that's cooled demand because people just don't want to be driving. COVID restrictions also played a part in shaping supply, but those are now easing as ports in China are reopening. So hopefully there are clear horizons ahead, especially as demand drops off and supply starts to catch up."

Of course, that brings us back to the bump in the road that is the scheduled end to the temporary excise cut in late September - a change which, even the government concedes, will almost certainly result in a price jump at the bowser.

In the longer term, the government has also flagged its intention to bring forward the deadline for the removal of high-sulfur fuel from 2027 to 2024.

Energy Minister Chris Bowen recently told Channel 9 that Australia currently has some of the dirtiest petrol in the world, meaning that a change in standards would not only put us in line with other developed nations, but improve both air quality and people's health.

The government estimates that the move would help save the health system $840 million over a three-year period, though it says that it would also result in an increase in petrol costs to the tune of $8 for each household over those three years.

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