Every time Australians fill their cars, utes or trucks, part of the price paid at the bowser goes to the Federal Government in the form of fuel excise.

It is one of Australia's oldest taxes, but following the Middle East fuel disruption in 2026 it has become one of the most closely watched.

With temporary relief measures now due to end, motorists and businesses alike are preparing for higher fuel costs.

What is fuel excise?

Fuel excise is a Commonwealth tax charged on petrol, diesel and many other liquid fuels.

The tax is collected when fuel leaves Australian refineries or is imported into Australia, but the cost is ultimately passed through the supply chain and paid by motorists and businesses purchasing fuel.

It contributes billions of dollars to Federal Government revenue each year and helps fund government spending, including transport-related expenditure, although it is not legally hypothecated solely to roads.

Why was the excise reduced?

Earlier this year, conflict involving Iran disrupted global energy markets, driving oil prices sharply higher and placing upward pressure on petrol and diesel prices across Australia.

To ease cost-of-living pressures, the Federal Government temporarily reduced the fuel excise. Initially, the reduction was more than half the normal rate before transitioning to a smaller discount as supply conditions improved.

How does the temporary relief work?

The original relief reduced fuel excise from 52.6 cents per litre to 20.6 cents per litre between 1 April and 30 June 2026.

From 1 July, the Government extended assistance at a reduced level, setting the excise at 36.6 cents per litre until 2 August 2026 as part of what it described as a gradual return to normal taxation.

When does the relief end?

Unless the Government announces another extension, the temporary relief concludes on 2 August 2026.

From 3 August, fuel excise returns to its normal indexed rate, meaning motorists should expect higher prices at the bowser, assuming all other factors remain unchanged.

Why is the Government ending the relief?

The Government says the emergency measure was designed to respond to an extraordinary period of geopolitical instability rather than become a permanent tax reduction.

Officials argue that while fuel markets remain volatile, immediate supply concerns have eased sufficiently to allow Australia to return gradually to its standard excise system. Continuing the discount indefinitely would also reduce Commonwealth revenue by billions of dollars.

What does this mean for transport?

Fuel is a major operating expense across the Australian economy.

Higher fuel costs can affect:

• Road freight operators.
• Farmers transporting produce.
• Bus and coach companies.
• Couriers and delivery services.
• Tradespeople.
• Small businesses operating vehicle fleets.

As transport costs increase, some businesses may pass those additional expenses on to consumers through higher prices for groceries, construction materials and other goods.

What about electric vehicles?

Electric vehicles currently do not pay fuel excise because they do not purchase petrol or diesel.

As EV ownership grows, governments are increasingly examining alternative methods of ensuring all road users contribute towards maintaining Australia's transport infrastructure.

Various road-user charging models have been discussed nationally, but no nationwide scheme currently applies.

A changing transport landscape

Australia is entering a period where two taxation systems coexist.

Drivers of petrol and diesel vehicles continue contributing through fuel excise, while EV owners avoid that tax but may eventually face a different charging model based on distance travelled or another mechanism if governments pursue broader road funding reform.

The Business Times View

Fuel excise is often viewed simply as another tax at the petrol station, but its influence extends throughout the economy. Changes in fuel excise affect freight costs, business operating expenses and household budgets. As Australia gradually shifts towards electric vehicles, governments face a longer-term challenge: finding a fair way to fund the nation's roads when an increasing number of motorists no longer buy taxable fuel.