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. As of 2026 (prices indicative — check FueVolt for live prices), the excise rate is approximately 50 cents per litre for petrol and diesel. LPG attracts a lower rate of around 15 cents per litre. 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: 50 cents excise, about 15 cents GST, 70 to 80 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 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. This means the excise increases automatically with inflation, typically by 1 to 2 cents per litre each year. The government does not need to pass new legislation for these increases — they happen automatically.
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 70 to 80 cents per litre due to excise plus GST alone.