Average fuel prices in Australian capitals remain well below the peaks seen in March and June. Recent data reveals that fuel is around 30-35 cents per liter lower than the highs of two months ago. As of last week, the average price of 95-octane unleaded petrol in eight capitals was AU$1.90 per litre.
The question on the minds of many motorists and businesses that rely on trucking to deliver goods and services is: have we seen the last of $2 gasoline for a while?
Given this year’s trends in international oil prices (a key component of Australia’s petrol prices), the answer would be: “It depends on the fuel tax.”
Read more: What Russia’s war means for Australian petrol prices: $2.10 a liter
A tax cut on fuel consumption after Russia invaded Ukraine
A fuel excise is a tax on fuel collected by the Australian government.
In March this year, when the Russian invasion of Ukraine began to drive up international oil prices, the previous federal government announced a 50% cut in excise duties on fuel for six months. In other words, it would levy lower fuel taxes until September (in an effort to soften the impact of rising international oil prices on Australian consumers). Following this decision, the cost of gasoline was reduced by 22 cents per liter.
Although the general trend has been downward in recent months, crude oil prices have fluctuated between US$92 and US$123 per barrel, well above normal in recent years.
With Australia’s fuel tax halved, this price range translates to average 95-octane unleaded petrol prices in eight capital cities of between A$1.90 and A$2.25 per litre.
Globally, crude oil is down about 25% from June’s high of $123 a barrel. That’s partly due to growing fears that a global economic slowdown will hit consumption, as central banks around the world raise interest rates to combat spiraling inflation.
The possible revival of a deal between Iran and Western countries that could lead to more Iranian oil exports has also helped push down oil prices. Overall, this is good news for Australian petrol prices.
What’s next for fuel tax in Australia?
However, a lot will depend on what the Australian government does about the fuel tax.
It is unclear whether the new government will extend the fuel tax cut introduced by its predecessors in March.
The excise tax cut is set to expire in September, right in the middle of a cost-of-living crisis in Australia.
In July, amid calls to extend the fuel tax, Treasurer Jim Chalmers said an extension is not an option:
We’ve tried to be honest with people and tell them that they shouldn’t expect gas price relief to go on forever.
According to the federal budget, the six-month excise tax cut has resulted in an A$3 billion impact on the economy.
Recent news reports indicated that the prime minister was “examining” an extension of the excise duty cut on fuel, but remains adamant that the cut is a temporary measure.
If the cut isn’t extended, average Australian petrol prices will almost certainly return to $2 territory by early October.
However, the solution to holding Australians hostage to volatile global prices and geopolitical developments will not come from extending the fuel excise tax cut.
The solution will come from reducing the demand for petroleum-derived fuels through policies that promote local power generation and the switch to low-emission vehicles.
The longer term perspective
Longer term, there is hope that oil and petrol prices will not hit the pocketbooks of Australian motorists and the Australian economy to the same extent as they have earlier this year.
The new Australian government has acknowledged that the country is “significantly behind when it comes to electric vehicles”.
Only 2% of cars sold in Australia are electric, five times less than the world average.
The government recently published some details about plans to establish a National Electric Vehicle Strategy, with a discussion paper on the subject due to be published for your reference soon.
At the heart of the strategy will be a plan to grow the Australian electric vehicle market, in a bid to improve EV adoption and improve affordability and choice.
Australia is the only OECD country that does not have, or is in the process of developing, mandatory fuel efficiency standards for road transport vehicles.
The new government will seek to introduce fuel efficiency standards for vehicles to help increase the supply of electric cars, improve affordability for motorists and reduce emissions.
Read more: High gas prices hurt, but cutting excise taxes would hurt energy security