The Fuel Excise Cuts Didn’t Work

Just before the budget back in March , I posted that any cut to fuel excise would be pointless and would fail to provide any long term relief to consumers.

This week average petrol prices in Sydney were back over $2.00, exactly the same place they were before the fuel excise cut was announced on 29 March. The cut provided about six weeks of price relief before demand pushed prices right back to where they were before the government intervened.

Markets operate in equilibrium, at a price where supply and demand are balanced. When fuel prices fell as a result of an external force (the fuel excise cut) they were out of equilibrium. As a result demand quickly exceeded supply in the current constrained market and prices just went back up until supply and demand were in balance again.

Over the same period we’ve seen almost no change in the price of oil. So all this policy has achieved is to transfer $3 billion of fuel excise from the government to petrol suppliers.

It was a terrible short-sighted policy from the start and should be unwound as soon as possible.