By Jeremy Rochow
Published: Thursday, May 16, 2019
Updated: May 10, 2022 at 4:22 pm
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 $85 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 22.1 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 was 44.2 cents per litre until the Federal Government halved it in March to ease motorists’ pain at the pump.
Thanks to the reduced excise, motorists will save roughly $15 a litre when filling a 60-litre tank with unleaded.
However, the Federal Government stands to lose $2.65 billion in excise revenue over the next six months, according to the Australian Automobile Association (AAA).
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).
The AAA offer a fuel excise calculator, which also offers a fuel versus electric vehicle comparison.
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.
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 more than $1.80 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. However if you have the myRAA app, you can get accurate and up-to-date fuel prices at the click of a button.
Due to the implementation of real-time fuel pricing, every South Australian retail outlet has to update their petrol prices online within 30 minutes of setting the price at the pump.