Australia to Cut Fuel Tax to Shield Drivers From Iran Impact

p][j}g08txy3v0ssu]bch4zu_media_dl_1.png Australian Institute Of Petrol

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(Bloomberg) — Australia will temporarily halve its tax on fuel to shield consumers from the impact of global prices, which have surged as a deepening conflict in the Persian Gulf upends supply.

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The levy on gasoline and diesel will be cut by about 26 Australian cents ($0.18) per liter from Wednesday, Prime Minister Anthony Albanese said at a press conference in Canberra. That will reduce the cost of filling a 65-liter (17-gallon) tank by nearly A$19, according to the government. 

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“The longer this war goes on, the worse the impacts will be,” Albanese said as he announced the three-month cut in the tax. The government will also reduce a charge on heavy vehicles such as trucks and coaches for the next three months and delay a planned increase in that rate by six months.

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Gasoline and diesel prices at the pump have surged to records, as panic buying boosted demand — especially in rural areas — and led to some service stations running out of fuel. The government has urged drivers not to buy more than they need, and says the nation’s fuel imports are at normal levels, despite the cancellation of several cargoes. 

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The measures are expected to cost about A$2.55 billion and to lower the consumer price index by 0.5 percentage point, Treasurer Jim Chalmers said. Inflation had already been picking up from the middle of last year, with Chalmers warning earlier in the month that it was set to rise above 4.5% due to the spike in energy prices, well above the central bank’s target. 

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Still, the moves may not be enough to cool price rises in the long run. Westpac Banking Corp. Chief Economist Luci Ellis revised her outlook for Reserve Bank of Australia interest rate hikes to three more times this year, which would take the cash rate to 4.85% — the highest since late 2008.

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The cut “reduces the near-term outlook for headline CPI inflation, but a peak of 5.4% y/y in June quarter remains likely,” said Ellis, who previously worked at the Reserve Bank, noting the announcement doesn’t affect prices of other oil-related products, including aviation fuel.

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2022 Precedent

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The last time Australia temporarily halved the fuel excise was in 2022 to help ease cost-of-living pressures as global oil prices surged following Russia’s invasion of Ukraine. That measure lasted six months.

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The average price of a liter of diesel jumped above A$2.82 last week, according to data from the Australian Institute of Petroleum, while gasoline was almost A$2.40, both the highest in at least 20 years. The average price in rural regions like the Northern Territory was even higher, a blow to farmers and long-distance transport firms.

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Several hundred gas stations have reported shortfalls in recent days. New South Wales Premier Chris Minns said Monday that there were 75 stations across the state without any kind of fuel and 242 without diesel, spread between metropolitan Sydney and regional areas.