By Jeremy Rochow
Published: Thursday, May 16, 2019
The majority of us rely on petrol to power our vehicles, but do we really understand what we’re paying for at the bowser?
Like electricity, gas and running water, petrol is a part of everyday life. But for a commodity that costs South Australians an average of $71.63 a week (according to the AAA Affordability Index Report), many of us know very little about what goes on beyond the bowser.
From excise tax to price fluctuation, we answer some common fuel-related questions to help you find out what you’re really paying for at the pump.
What drives unleaded petrol prices?
Did you know that you pay close to 40% in taxes when you fill your car with unleaded petrol?
The biggest tax is the fuel excise, which is currently 41.6 cents per litre – we’ll explain a little bit more about that later. On top of that, you pay a 10% Goods and Services Tax (GST).
Taxes aside, the largest component of the retail price of petrol, accounting for almost 50%, is the international price of refined petrol known as Singapore Mogas 95. The cost of Mogas 95 varies depending on a range of factors, including the price of crude oil and the strength of the Australian dollar.
The combined cost of Mogas 95 and taxes makes up about 87% of the retail price of petrol. The rest goes to refiners, wholesalers and retailers to cover their costs and make a profit.
What is the fuel excise?
With the exception of registration and heavy vehicle charges, motorists don’t directly pay to use the roads. Instead, we pay a fuel excise tax whenever we buy petrol or diesel. The tax is currently 41.6 cents per litre.
According to the Australian Automobile Association (AAA), 4 out of 5 motorists are unaware they pay more than 40% in tax each time they fill up.
The amount SA motorists currently pay in fuel excise tax is approximately:
Most of us have paid the tax for our entire lives, with the fuel excise introduced in Australia in 1929 when oil refineries were first established.
Fuel excise is now one of the federal government’s largest sources of transport-related revenue. It also fluctuates, with the rate indexed twice a year to align with the consumer price index (CPI).
Where does the revenue go?
Each year SA motorists raise about $1 billion in fuel excise; however, the federal government only sets aside a fraction of this for repairing our roads. The rest goes towards general revenue.
RAA Future Mobility Expert Mark Borlace says there needs to be more transparency about where the money is spent.
“Motorists make a significant contribution to government revenue through the fuel excise, but only some of it is allocated towards improving transport infrastructure,” Mr Borlace says.
“RAA would like to see the majority of the income raised from motorists through the petrol tax be directed back into roads.”
Australian motorists agree money raised from the fuel excise should be used to maintain the nation’s roads, with a AAA survey finding a third of road users believe 100 per cent of the tax should be spent on land transport projects.
How will the rise of electric vehicles impact the fuel excise?
The federal government might not be able to rely on the fuel excise in the future. Each year, more fuel-efficient vehicles enter the market, with electric and hybrid vehicles becoming increasingly popular. Many of these vehicles require little-to-no petrol, decreasing the amount of revenue raised at the pump.
Motorists already pay different prices to use the same roads, depending on the type of car they drive. Older petrol-guzzling vehicles cost far more to fill up – and are taxed more – than newer, more economical cars.
The increase in people purchasing electric vehicles will only further the price divide, as road users who no longer purchase petrol won’t be paying the excise at all.
Car companies are moving towards selling more electric vehicles as well. Volvo predicts that 50% of its sales will be electric by 2025, while other manufacturers aim to sell one million electric vehicles by the same year.
Mr Borlace says the government will need to consider alternatives to the fuel excise as more electric cars are driven on South Australian roads.
“If in a few years we do see a big take up on electric vehicles, we’re going to see a big hole in the federal government’s budget which could have consequences for the nation’s road network,” he says.
“The system needs to be changed. One solution is to charge motorists depending on how much they drive – this would require new technology and infrastructure to monitor road usage.”
Why do petrol prices fluctuate?
Every day, thousands of South Australian motorists pull into service stations across the state, pop open their fuel caps and fill their cars with petrol.
If the price is pushing a $1.60 a litre, we groan in disdain; if it’s closer to $1 a litre, we let out a sigh of relief.
But why does the price fluctuate in the first place?
The retail petrol price in Adelaide moves in cycles through troughs and peaks. In these cycles, prices steadily go down over a period of time, followed by a sharp increase which varies between 30 to 40 cents.
According to the Australian Competition and Consumer Commission (ACCC), these petrol price cycles occur in markets where there is competition.
Major fuel retailers seek to undercut the prices of their competitors, slowly reducing their fuel costs in a game of fuel discount leapfrog. This can eventually result in prices dropping so low that retailers no longer make a profit.
Eventually, the larger retailers in the market reach a point where they can no longer afford to participate in the discounting game and increase their prices significantly, with other sellers following suit.
“These price cycles aren’t related to the wholesale costs, but are the result of deliberate pricing policies of petrol retailers,” Mr Borlace says.
“Petrol is at its cheapest about 10 to 30 days after a peak, so if you see the cost per litre suddenly jump, try and hold out for a fortnight or so and you’ll see lower pump prices start to appear.”
How can I ensure I get the best deal?
If you take out your smartphone and search for fuel prices in your app store, you’ll probably find a range of fuel-comparison apps.
While they can be helpful at times, these apps generally rely on a mix of data from users, retailers and private companies.
The frequency of price updates on these apps varies, and may only focus on an area rather than a particular service station, meaning the data collected is not always accurate, particularly across regional areas where the coverage is not as good.
The implementation of mandatory reporting laws in South Australia would change that.
New South Wales, Queensland and the Northern Territory already have mandatory real-time fuel reporting laws, which stipulate that all service stations must provide real-time prices for their fuel, which can then be published on websites and apps.
The NSW and Northern Territory governments even have their own fuel apps, FuelCheck and MyFuel NT.
The South Australian Government has committed to delivering mandatory real-time fuel pricing in SA.
Mr Borlace says South Australian motorists would benefit financially from mandatory real-time fuel reporting and urges the state government to deliver on its commitment.
“As we’ve seen in other states, visibility of real-time fuel pricing allows consumers to compare pricing and buy at the bottom of the cycle,” Mr Borlace says.
“This can reduce the fuel cost by about a quarter, which for an household could be up to $400 a year.”