Australia’s fuel discount is ending. What does this mean for petrol prices?

Australians are bracing for more pain at the fuel pump, with the federal government set to scrap its fuel excise discount this Sunday. The government has confirmed the full fuel excise – a flat tax on petrol and diesel bought at the bowser – will kick in again at midnight on August 2. In February, Australians were paying 52.6 cents of tax for every litre of fuel pumped. The 60% discount was introduced in April – as the US-Iran war flared up and effectively severed the flow of oil and gas through the Strait of Hormuz. It cut the fuel excise rate to 20.6c a litre. However, the federal government has said this fuel relief measure was never meant to be permanent. That’s despite persistent cost-of-living pressures and the volatile conflict playing out in the Middle East. So has the discount actually helped motorists? And once it ends, will fuel prices surge? Remind me, what is the fuel excise? The fuel excise is effectively a government tax on fuel and diesel sold at retail fuel outlets. In Australia, we’ve had one form of the fuel excise in place since Federation in 1901. At the time, the federal government could only tax a handful of goods. Fuel was one of them, as the government could impose an import tax on fuel when it arrived on Australian shores. Today, the fuel excise acts like any other tax: a source of government income that is used to pay for defence, health care and other essential services. The exact tax rate is calculated from a base rate and indexed every six months using the consumer price index (CPI) – a tool the government uses to measure inflation by tracking the cost of everyday goods and services over time. When the government’s fuel excise discount ends on August 2, the tax rate will likely be higher than where it was in the first half of 2026 because CPI has increased. Read more: Australians brace for higher fuel prices as US-Iran conflict resumes (again) Has the discount made a difference? The government introduced the fuel excise discount in a bid to curb underlying inflation, which measures how much prices increase over time. When the discount was introduced, the government estimated it would lose A$2.5 billion in revenue and an extra $400 million after extending it. However, it’s tough to tell if the fuel excise discount helped ease inflation. That’s because the underlying cost of fuel has been falling steadily in recent months. While prices surged by 32.8% in March compared to the previous month, they’ve since dropped by 35%. The Reserve Bank of Australia – which is responsible for keeping prices and employment levels stable – has cited rising fuel prices as a factor driving headline inflation. And it estimated the excise cut would reduce headline inflation by 0.5 percentage points. Fortunately, the latest data shows inflation has eased. However, it’s unclear whether this is more due to the falling price of fuel, the fuel excise discount or other economic factors. It’s clear Australians used less fuel when prices were high. Petrol consumption was down by 7% in April and 10% in May compared with data from previous years. But petrol prices fell in June and July, and we don’t yet have the data to know if this prompted Australians to drive more. Ending soon When the fuel excise discount ends, fuel prices are likely to go up by 16c a litre. As a result, people will find ways to use less fuel, including by driving less. There may also be long petrol station queues of commuters stocking up on cheaper fuel this weekend. Some people may race to panic-buy fuel. This happened in March, with people reportedly filling trailer-mounted fuel tanks and jerry cans amid rumours of fuel rationing. However, this is less likely to happen now given the government has imported fuel from our Asian neighbours. Drivers line up to buy petrol in Brisbane, hours after the federal government confirmed it would end its fuel excise discount. Liz Minchin/The Conversation In Australia, several industries – including agriculture and freight – are already feeling the effects of high diesel prices. This is because they can’t easily pass on higher fuel costs to their customers. Importantly, ending the excise discount will reintroduce the full road user charge for heavy vehicles. This charge – which the government collects by retaining part of the fuel tax credit – recovers the cost of wear and tear from these vehicles. The charge was set to zero between April 1 and June 30, and 16.4c a litre for July. From August 3, it will return to pre-Iran war rates. Read more: What can governments do when petrol prices rocket? What you can do Once the fuel excise discount ends, here are some practical ways to curb your fuel costs. find other ways of getting around, for example by walking to the shops or relying on public transport ensure your car tyres are properly inflated, which reduces how much fuel your car consumes drive smoothly and to the speed limit, as both strategies conserve fuel if you’re in the market for a new or second-hand car, check the Green Vehicle Guide to compare how much fuel different cars consume. If it’s in your budget, you can consider buying an electric vehicle to avoid paying for expensive fuel. Read more: Will oil prices ever truly go back to ‘normal’?