In a concerning development for drivers, global oil prices are climbing steadily, prompting the average cost of regular unleaded petrol in Australia to reach approximately $2.38 per litre. This surge, reported by NRMA Insurance, comes as a result of increasing supply pressures.

One of the critical choke points contributing to this strain is the Strait of Hormuz. This vital passage, responsible for transporting nearly 20% of the world’s oil and gas, has been essentially blocked since conflict erupted in the Middle East on February 28th. The disruption in this narrow, strategic waterway has significantly impacted global oil supply and prices.

Despite these international challenges, domestic factors influencing petrol prices in Australia, such as taxes and duties, have remained largely unchanged. The fuel excise and GST together contribute to 52 cents per litre, leaving the remainder of the cost in the hands of petrol retailers.

Although the escalating costs are hitting motorists hard, experts convey a somewhat optimistic perspective. They have informed SBS News that Australians, in comparison to many other nations, are in a relatively favorable position when it comes to fuel expenses. This advantage is primarily due to Australia’s lower fuel excise, which is considerably less than that imposed in several other countries.

Motorists will be feeling the brunt of the increased costs, but experts have told SBS News that Australians are “relatively well off” compared to many countries when it comes to fuel.

This is largely thanks to the fuel excise being significantly lower than in many other countries.

So, what is the point of taxing fuel, and how does the government determine when to change the excise?

What is the fuel excise?

The Australian government imposes a tax on petrol, called the fuel excise, currently set at 52c per litre.

Fuel is also subject to GST, which carries a standard duty of 10 per cent.

It is then up to the oil companies to set their profit margins, considering the wholesale costs of fuel and factoring in taxes.

The cost of fuel is otherwise unregulated, but Australia’s consumer watchdog does monitor the industry for price gouging and uncompetitive practices.

NRMA spokesperson Peter Khoury explained that the excise tax creates revenue for the government to spend on roads and infrastructure.

It doesn’t cover the total costs of maintenance and upgrades, but it makes a positive difference in the budget.

“The fuel excise and GST are a tax on a tax. And the only other commodities where that happens are alcohol and cigarettes,” he told SBS News’ podcast Cost of Living Secrets, referring to the fact that GST is applied on top of the fuel excise.

“Prices of fuel go up and down based on when the excise changes and when oil companies shift their profit margins.”

When does the excise change?

Looking at current national averages estimated by NRMA, a litre of petrol minus the fuel excise is around $1.70, and much of this cost comes directly from rising oil prices overseas.

Brent crude oil has been costing around US$100 ($143) per barrel this week, according to international markets, a spike since the conflict in the Middle East started.

“We see that the biggest contributing factor is global oil prices,” Khoury said.

“If we’re going to get real relief at the bowser, it must come from falls in oil prices. We cut the excise, and we will still pay record prices.”

The government has reduced the fuel excise in the past to ease cost-of-living pressures.

During the COVID-19 pandemic, a sustained period of inflated prices, the government halved the excise for six months.

Associate professor Ben Phillips from ANU’s Centre for Policy Research told SBS News that’s unlikely to happen again in the immediate future, as the excise typically shifts by mere cents at a time.

“There’s bill shock when it comes to petrol prices,” he said, describing the current prices as a temporary lift, compared to the COVID-19 era economic upheaval.

“When you look at how much extra you might pay because of this tax, it’s a minimal amount.”

Compared to other member states of the Organisation for Economic Co-operation and Development (OECD), Australia has some of the cheapest petrol prices and related taxes.

“Our taxation for roads via excise is really very, very low and petrol prices are very low when looking to other similar economies,” he said.

“So in a sense, we’ve got a pretty good here in Australia for road users.”

How does Australia compare?

Australia’s fuel excise is currently sitting at around 52 cents per litre.

It’s half of what people pay in Japan, which charges 26 cents per litre in fuel excise and duties.

At the other end of the list, European countries have some of the highest taxes on fuel, where excises and duties make up most of the price of petrol.

Norway has a tax of $1.68 per litre, and in France that number is $1.40 per litre, a substantial difference from Australia.

Phillips said that Europeans regularly pay upwards of $3 per litre of petrol on any given day, with that number even higher now with ongoing conflicts.

“Whenever you travel to Europe, you will notice that petrol over there is much more expensive,” he said.

This increased cost means more revenue for European governments to invest in making their cities less car-dependent.

“They’re making a bigger contribution to their roads and also they’re setting up their economies over the long run by doing that to have alternative transport forms that are better for the environment, so less emissions and less pollution,” he said.

This can also reduce traffic and road maintenance costs, he said.

“Raising the excise here like in Europe probably wouldn’t be politically popular as we are very car-dependent as a nation. But if we want to reduce pollution and traffic issues, that’s probably where we should be heading.”

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