The price of petrol is about to leap, as the previous government’s temporary halving of the fuel excise tax comes to an end this week. Nobody likes price hikes, but cutting fuel taxes was never the solution to our cost-of-living crisis and has probably done more harm than good.

The cuts helped the well-off but did little to help those most in need, encouraged the use of fossil fuels that hurt our environment and our health, and forced taxpayers to pay for an even greater share of the damage heavy vehicles do to our roads.

It only lasted for six months, but the cut in fuel excise reduced government revenue by about $3 billion. Anything with a price tag that big – two-thirds of the cost of the childcare subsidy over the same period – needs to help those who need it the most. But the benefits from the excise cut went disproportionately to the wealthy, because the highest-earning 20 per cent of households spend almost three times as much on petrol and diesel as the lowest-earning 20 per cent.

To make matters worse, the fuel tax cuts have reduced the share of road maintenance and construction costs paid by the operators of heavy trucks and buses, which are responsible for more than 98 per cent of wear-and-tear to our roads.

Truck and bus operators are expected to pay for their share of road costs through an annual registration fee and a fuel-based road-user charge, which is collected through the fuel excise tax. But since 2014, federal transport ministers have limited increases in the road user charge, because they were concerned about how the charges were calculated.

Cutting fuel excise reduced the road-user charge by a further 4 cents a litre. It’s now up to taxpayers to cover these costs.

And as much as it feels like petrol is expensive at the moment, low taxes on fuel mean Australia has some of the cheapest petrol in the world. In normal times, petrol taxes in New Zealand are almost double Australia’s, and in the UK and France they are more than 60 per cent higher than ours. In late 2021, before the recent price spikes, premium petrol prices in the UK were $A2.65 per litre, compared with $1.80 in Australia.

A consequence of cheap petrol is that Australians buy more gas-guzzling SUVs than almost anywhere in the world. In 2019, 66 per cent of the light vehicles sold in Australia were SUVs and pick-up trucks, compared with 44 per cent globally.

Improvements in technology mean that the same types of cars can run on less fuel than they used to, reducing the carbon emissions they produce. But this won’t do much good if we all start driving bigger cars that need even more fuel. And SUVs are much more likely than other light vehicles to run on diesel, which harms human health even more than other fuels.

Our reliance on cars that need a lot of petrol mean Australians feel the pinch more than other people when petrol prices rise. There’s not much we can do about this right away, but longer-term we can all make choices that reduce how much fuel we use. You might choose to purchase a smaller car that needs less fuel to run, or to do away with fuel altogether and buy an electric vehicle.

But we like driving big cars, and we have no reason to make these choices if we know that the government is going to intervene to keep fuel prices low every time there is a price spike. The Albanese government should send a clear message that this won’t happen again.

Our dependence on fuel is made worse by the fact that almost all our fuel is imported. And the two remaining refineries in Australia that make petrol and diesel still use imported oil, not to mention relying on large subsidies from the federal government.

Volatility in oil prices is nothing new. The price of Brent crude reached $US100 a barrel in early August, as it did for three-and-a-half years between March 2011 and August 2014, and before that for six months in the middle of 2008.

And while international turmoil has not severely reduced our access to the global oil supply just yet, it is a real threat with consequences far greater than paying a bit more for petrol. Shifting to vehicles that use less or no fuel will reduce this reliance, making Australia better prepared for the next shock, be it price or supply.

Critics may say that with the cost of living being pushed up by events outside our control, such as the war in Ukraine and COVID-related disruptions to supply chains, this is one element that the government can target with precision. But fuel is the wrong target. Instead of focusing on which products are increasing in price, we need to focus on which households need help the most.

When petrol prices increase this week, we shouldn’t whinge. The fuel tax cuts served only to line the hip-pockets of the wealthy, force taxpayers to cover the costs of the damage heavy vehicles do to our roads, and slow our transition away from fuels that harm our health and the environment.

Natasha Bradshaw

Senior Associate
Natasha Bradshaw is a Senior Associate in Grattan Institute’s Economic Policy program. She previously worked at the Australian Treasury, with a focus on structural issues in the labour market and barriers to women’s economic security.

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