Look closely at a fuel receipt and one part of the total may surprise you: a substantial amount never reaches the servo at all — it goes to the federal government as fuel excise. Once you understand that slice, the price on the board makes a lot more sense, and you stop expecting it to fall below a certain floor.
Fuel excise is a flat, per-litre tax, and the rate is set and indexed by the Australian Taxation Office. This guide explains how it works, how much of your fill is tax, and why it puts a hard floor under pump prices.
What Is Fuel Excise?
Fuel excise is a flat-rate tax applied to every litre of petrol, diesel and LPG sold in Australia. From 3 August 2026 (rates change periodically — check the ATO's current excise duty rates rather than relying on a fixed figure), the excise rate is 53.7 cents per litre for petrol and diesel. LPG (autogas) attracts a lower rate, around 17 cents per litre at the standard rate. On top of the excise, GST (10 per cent) is charged on the total price including the excise — effectively a tax on a tax.
For a litre of petrol priced at 170 cents, the breakdown is roughly: 54 cents excise, about 15 cents GST, 65 to 75 cents for the crude oil and refining cost, and 25 to 35 cents for the retailer's margin, transport and distribution.
How Is It Set?
The fuel excise rate is set by the federal government and, in normal times, indexed to the Consumer Price Index (CPI) twice a year, in February and August. The ATO publishes how excise duty on fuel is calculated and applied. Under routine indexation, the excise increases automatically with inflation, typically by 1 to 2 cents per litre each year, without new legislation. Outside routine indexation, the government can also legislate a temporary cut or freeze — as happened for several months in 2026 (see below) — which suspends normal CPI indexation until the relief period ends.
The 2026 Excise Relief
In response to cost-of-living pressure, the federal government cut fuel excise on petrol and diesel roughly in half — from about 52.6 cents to 26.3 cents per litre — from 1 April 2026. The rate was partially restored to 36.6 cents per litre from 1 July 2026, before returning fully to the indexed rate of 53.7 cents per litre from 3 August 2026. LPG received a proportional cut over the same period, dropping to around 6.7 cents per litre during the relief before returning to its standard rate. If you filled up between April and early August 2026, the excise component of your fuel bill was noticeably lower than it is now.
What Does It Fund?
Fuel excise revenue goes into the federal government's consolidated revenue — it is not hypothecated (earmarked) specifically for roads. However, the government allocates significant funding to road infrastructure through separate budget processes. In 2024-25, fuel excise raised approximately $18 billion for the federal budget.
Historically, fuel excise was directly linked to road funding, but the formal link was gradually severed during the latter half of the 20th century. Today, the fuel excise is simply a general revenue measure, similar to income tax or company tax.
The 2022 Excise Cut
During the cost-of-living pressures of 2022, the Morrison government temporarily halved the fuel excise from 44.2 cents to 22.1 cents per litre for six months (March to September 2022). This was one of the largest temporary tax cuts in Australian history and was estimated to save the average household $700 over the six-month period. When the cut expired, prices jumped as the full excise was restored.
EV Road User Charges
As more Australians switch to electric vehicles, fuel excise revenue is declining. EVs do not buy petrol, so they contribute nothing through this mechanism. Some states have explored road user charges for EVs to offset declining fuel excise revenue, though legal challenges have affected their implementation.
This creates an interesting policy tension: the government wants to encourage EV adoption for environmental reasons but also needs to replace the revenue that EVs erode from fuel excise.
International Comparison
Australia's fuel excise is moderate by global standards. Countries like Germany, France and the UK levy significantly higher fuel taxes, often exceeding $1 per litre equivalent. The United States, by contrast, has very low federal and state fuel taxes, contributing to its much cheaper pump prices.
Impact on Pump Prices
Because fuel excise is a fixed amount per litre rather than a percentage, it has a greater proportional impact when crude oil prices are low. When crude drops and the base cost of fuel falls, the excise becomes a larger share of the total price, putting a floor on how cheap fuel can get.
Understanding the tax component helps set realistic expectations about fuel prices. Even if global oil prices collapsed, Australian pump prices would not drop below about 75 to 85 cents per litre due to excise plus GST alone — though that floor moves whenever the excise rate itself changes, as it did during the 2026 relief period.