‘Political Band-aid’: cutting Australia’s fuel excise could make petrol shortages worse, economists say | Petrol prices
Economists have warned fuel excise cuts could be a “political band-aid” that could worsen oil shortages and increase inflation.
Mining billionaire Gina Rinehart, Tasmania’s premier and Liberal opposition leaders in New South Wales and Victoria have called on the Albanian government to cut taxes on petrol and diesel.
Petrol prices have increased from 180c per liter at the beginning of March to 250c per litre, and diesel to around 300cc per liter. Retailers such as service stations pay fuel consumption tax, which is set at 52.6 ca litres, for both.
The federal Liberals and Nationals have so far stayed away from joining Wednesday’s calls. Finance Minister Jim Chalmers said the government was not considering the move.
Richard Holden, a retired professor of economics at the University of NSW, said it would be a “very bad idea” for the government to bow to mounting pressure.
“This will make demand higher than it normally is, which will worsen the fuel shortages we are already experiencing,” he said.
He said higher prices would encourage cuts in fuel use by those who can afford it. Australia faces uncertain fuel supplies in the coming weeks and the government has not imposed limits on household gasoline purchases.
Holden said private consumption cuts also risked contributing to Australia’s high inflation rate by allowing some households with sufficient income to spend more.
“This is going to make inflation worse, and it’s actually a political Band-Aid rather than any sound economic one,” he said.
Halving the fuel tax for one month would return approximately $23 to urban households, $35 to regional households, and $38 to suburban households. According to 2025 analysis John Hawkins and Yogi Vidyattama from the University of Canberra.
University of Southern Queensland economics professor Fabrizio Carmignani said revenue from the consumption tax would be better spent on cost-of-living policies for poor households.
Scott Morrison’s government has halved fuel taxes worth around $1 billion a month for six months after Russia’s invasion of Ukraine led to a rise in oil prices in 2022.
e61 Institute research found that affluent households reap the biggest share of the benefits because they tend to use more gasoline.
However, according to e61 economist Adit Maitra, low-income households are most affected by increases in fuel prices; This means the consumption tax cut will not be aimed at supporting those most in need.
“Everyone benefits from this aid, even households and perhaps even businesses that we think the government shouldn’t be supporting right now,” Maitra said.
He said Australians in financial distress could be better supported by increases in payments such as job seekers, government rental assistance and family tax benefits.
A spokesman for Rinehart’s company, Hancock Prospecting, said Rinehart has long advocated for fuel excise tax cuts.
“You’ve apparently only spoken to left-wing, high-tax-loving economists who offer a predictably one-sided assessment,” the spokesman said.
NSW opposition leader Kellie Sloane said the Albanian government should still consider reducing consumption tax, regardless of economists’ concerns.
“This is a very heavy tax,” Sloane said. “Instead of a definitive no from Canberra, how about you show us your numbers, show us why you think this won’t work?”
Sloane and his Victorian counterpart Jess Wilson have written to Anthony Albanese demanding a consumption tax cut.
Asked whether cutting consumption duty would worsen famines or inflation, Wilson said: “Victorian households and businesses now need cost relief, which is why I’ve called on the prime minister to temporarily cut fuel duty.”
Additional reporting by Penry Buckley
