Australia fuel tax: Drivers pay tax on tax, costs rise

Drivers in Australia are paying tax on tax for fuel. In 2023, taxes made up 31% of the price of each litre of petrol.
By Newsroom | Finance, Australia |

Australian motorists face a two-pronged tax assault at the fuel pump, with the price of petrol inflated not just by an excise but also by a Goods and Services Tax (GST) levied on the already taxed amount. This means drivers are effectively paying a tax on a tax, a phenomenon described as the government 'double dipping' into their pockets.

== The impact of these taxes is significant, with data from 2023 indicating that tax constituted 31 per cent of the price per litre of fuel. Furthermore, when fuel is imported, it is subjected to an excise equivalent customs duty and the GST, both borne by the importer. This system applies even though approximately 90 per cent of Australia's fuel supply is imported. ==

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Excise Levels and Comparisons

While the federal government, under Prime Minister Anthony Albanese, temporarily halved the fuel excise, this measure did little to offset the ongoing tax burden. Currently, the fuel excise stands at 52 cents per litre. However, when compared internationally, Australia's fuel excise appears relatively low. Other nations, such as Japan, charge considerably more in excise and duties.

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Beyond Fuel: 'Sin Taxes' and Shifting Revenue

The taxation of fuel is part of a broader reliance on 'sin taxes' to bolster government budgets. Historically, tobacco excise has been a substantial revenue stream. However, this reliance is now faltering. Heavy tobacco taxation in Australia has, paradoxically, fueled a burgeoning black market. This illicit trade, now worth hundreds of millions of dollars annually, is a direct consequence of making legal tobacco products prohibitively expensive through excise hikes.

The Fading Power of Tobacco Tax

The effectiveness of tobacco excise as a revenue generator and a public health tool is diminishing. The drive towards reducing smoking prevalence through steep tax increases has pushed consumers towards illegal alternatives. This has led to a "sharp drop" in tobacco excise revenue, presenting a significant challenge for a government that has long used this tax as a primary instrument for tobacco control. The high cost of cigarettes, driven by excise, has created a lucrative environment for organised crime, which floods the market with untaxed, cheaper products. This situation undermines public health efforts and erodes a once-reliable source of government income.

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Frequently Asked Questions

Q: Why are Australian drivers paying more for fuel?
Drivers are paying a tax on a tax because the Goods and Services Tax (GST) is applied to the price of fuel after the fuel excise has already been added. This means the government collects tax on the tax itself.
Q: How much of the fuel price is tax?
In 2023, taxes made up 31 per cent of the price per litre of fuel in Australia. The current fuel excise is 52 cents per litre.
Q: Is Australia's fuel tax high compared to other countries?
While Australia's fuel excise is 52 cents per litre, it appears relatively low when compared to countries like Japan, which charge much higher excise and duties.
Q: What is the impact of high tobacco taxes in Australia?
High tobacco taxes have led to a large black market for cigarettes, worth hundreds of millions of dollars annually. This illicit trade means less tax revenue for the government and undermines public health efforts.
Q: Why is tobacco tax revenue falling?
The government's strategy of increasing tobacco excise to reduce smoking has pushed many consumers to illegal, cheaper products. This has caused a sharp drop in official tobacco excise revenue and created opportunities for organised crime.