Fuel Excise Cut: Economists Warn It Could Worsen Shortages & Inflation in Australia

Australians are facing a sharp increase in fuel costs, with petrol prices surging to 250 cents a litre and diesel reaching around 300 cents, up from 180 cents at the start of March. As prices climb, calls to cut the federal fuel excise – currently set at 52.6 cents a litre – are growing louder, but economists warn such a move could exacerbate existing supply issues and fuel inflation.

The debate centers on whether a temporary reduction in the excise tax would provide meaningful relief to consumers without unintended consequences. Mining billionaire Gina Rinehart, along with Tasmanian Premier and Liberal opposition leaders in New South Wales and Victoria, have publicly advocated for a cut. However, Treasurer Jim Chalmers has indicated the Albanese government is not currently considering the proposal.

The Economics of a Fuel Tax Cut

Economists like Richard Holden, an emeritus professor at the University of NSW, argue that cutting the excise would be a “very bad idea.” Holden contends that reducing the tax would artificially stimulate demand, worsening the current fuel shortages. “That is simply going to create demand higher than it otherwise would be, which is going to make the fuel shortages we’re already experiencing worse,” he said. The logic is that lower prices encourage consumption, putting further strain on a supply chain already struggling to meet demand.

This concern is amplified by the potential inflationary impact. Holden suggests that a fuel excise cut would primarily benefit households with disposable income, allowing them to spend more and potentially contributing to broader inflationary pressures. This echoes concerns raised about previous excise cuts, such as the one implemented by the Morrison government in 2022 in response to rising oil prices following Russia’s invasion of Ukraine. That six-month cut cost nearly $1 billion per month and research from the e61 Institute found that wealthier households benefited disproportionately, as they tend to consume more fuel. The Guardian reported on this disparity in March 2025.

Who Benefits, and Who Pays?

The distribution of benefits from an excise cut is a key point of contention. Analysis from the University of Canberra, cited in The Guardian, suggests that halving the fuel excise for a month would yield modest savings for households: around $23 for those in inner cities, $35 for regional households, and $38 for those in outer suburbs. However, economists like Fabrizio Carmignani, from the University of Southern Queensland, argue that the revenue generated by the excise tax could be better directed towards targeted cost-of-living relief for lower-income households.

Adit Maitra, an economist at the e61 Institute, points out that lower-income households are disproportionately affected by fuel price spikes, making a broad-based excise cut a less effective means of support. He suggests that bolstering payments like JobSeeker, Commonwealth Rental Assistance, and Family Tax Benefits would provide more targeted assistance to those most in need. Maitra too notes that an excise cut would benefit all consumers, “even households and perhaps businesses that we might think that the government shouldn’t be supporting at this time.”

A History of Fuel Excise Adjustments

The current debate builds on a recent history of fuel excise adjustments. As mentioned, the Morrison government temporarily halved the fuel excise in 2022 to mitigate the impact of rising global oil prices. This measure, while providing short-term relief, ultimately proved costly and disproportionately benefited higher-income earners. The current situation differs in that it’s driven by a combination of global supply factors and potentially localized shortages, rather than a sudden spike in international oil prices.

Rinehart’s Position and Political Pressure

The call for an excise cut isn’t solely coming from economists and politicians. Mining magnate Gina Rinehart has been a vocal advocate for the measure, arguing that petrol and diesel shouldn’t be treated as “luxury purchases” subject to a 52-cent-per-litre tax. As reported by the Daily Telegraph, Rinehart believes cutting the tax is essential to alleviate the financial burden on consumers.

The NSW opposition leader, Kellie Sloane, and her Victorian counterpart, Jess Wilson, have also written to Prime Minister Anthony Albanese requesting an excise cut, citing the need for immediate cost relief for Victorian households and businesses. However, the federal Liberals and Nationals have, so far, refrained from publicly endorsing the calls.

Looking Ahead: Government Response and Potential Alternatives

The Albanese government remains resistant to calls for an excise cut, with Treasurer Chalmers stating the measure is not under consideration. The government’s reluctance likely stems from the economic warnings about exacerbating shortages and fueling inflation. Instead, the focus appears to be on addressing the underlying supply issues and exploring more targeted cost-of-living relief measures.

The situation is further complicated by Australia’s unpreparedness for fuel crises, as highlighted in a recent report. The Guardian detailed this lack of preparedness in March 2026. Without addressing these systemic vulnerabilities, any short-term fix, such as an excise cut, risks being a temporary and ultimately ineffective solution. The government will likely continue to monitor fuel prices and supply levels closely, while considering alternative measures to support vulnerable households.