Fuel excise cuts may not be everything you and/or your accountant hoped for

Because your personal and business finances could have been under stress from savage pre-Budget fuel cost increases – and further stressed by inflation and the prospect of an imminent cash rate hike – you and your accountant may be disappointed by fewer benefits than hoped for in the Budget’s 22c cut to petrol tax that will last for only the next six months.
Some economists are predicting the Reserve Bank of Australia (RBA) will increase the cash rate as soon as June, and inflation seems likely to be around for the foreseeable future, but Gavan Ord of CPA Australia says accountants can meanwhile be especially helpful in enabling clients to factor the significance of these challenges, including high fuel prices, into updated business plans.
He says that even though they may believe petrol may never cost as much as $3 a litre, accountants should be looking at how this price – and prices approaching it – could affect the bottom lines of clients’ businesses, and how businesses can best employ technology to minimise this cost and/or “pass it on”.
Although Treasurer Josh Freydenberg says cheaper fuel at the bouser will reduce inflation by .25%, have no illusions. Although you may save $10 to $13 filling a 50-litre tank -- assuming you’re getting the full benefit of the cut -- you’ll still have to foot the bill, one way or another as a taxpayer, for the $3b this largesse will cost the Treasury.
Worse, the short-term fuel excise cut will do little to boost cash flow in many businesses, and in transport sectors may actually cost them money, a cost they will seek to offset by raising prices charged to customers (see subsequent explanation). Credit Watch predicts decline in cash flow will be the key driver for insolvencies this year.
Already thumbs are turning down
Macks Advisory sources among infrastructure experts are already turning their thumbs down at the government’s move, declaring it won’t solve the insidious problem of rising petrol prices nor the loss of fuel tax revenue that funds infrastructure projects, a loss that will have to be covered in various ways by taxpayers. (The Budget has committed $18b to infrastructure spending, $2.9b of it in SA.)
Even if Mr Freydenberg is right when he says excise cuts will save families with two cars that have tanks filled weekly about $700 in the next six months, that’s only about $27 a week – and how many two-car families fill both tanks every week? Even if they did, a weekly saving of $27 will be somewhat less exciting when they realise the cost of grocery prices and other essential goods will rise faster than expected because it’s costing more for truckies to deliver them to supermarkets.
Here's why. As the struggling transport industry braces for another year of supply chain chaos, trucking companies are big losers because they will have to pay about 20c more per litre for diesel after the government’s cut to the Fuel Tax Credit rebate. Previously the rebate represented a cash-back of about 18c a litre on diesel.
Steve Shearer of the SA Road Transport Association insists trucking companies won’t get a net gain of 4.3c per litre the Treasurer said they’d get from the excise cut because they’ll have to reduce their fuel levy (normally applied to freight charges as a safety net to counter unpredictable fluctuations in diesel prices).
At the same time Mr Shearer says they’ll also have to forfeit the 17.6c a litre cash-back that was available to them pre-Budget. “For example, previously they would get 44c minus the road use charge, so for every litre of diesel they would be banking 24c. If all the government is going to do is cut the fuel excise, then the trucking industry is in serious trouble.”
The transport industry is already in serious trouble. Drivers, stressed by disruptions arising from supply chain chaos, delays occasioned by pandemic restrictions, and staff shortages -- because workmates are sick with COVID or in isolation as close contacts of people who have tested positive for the virus – have become fed up with the industry and are quitting it.
Construction/infrastructure problems
An enormous amount of fuel is used in construction and infrastructure companies and by the transport companies on which they rely. If truckies’ fuel costs increase, as they claim they will because of the excise cut, then it’s likely at least some, if not all these costs, will be passed on to construction firms. According to Australian Securities and Investment Commission (ASIC) data these firms have already recorded a 38% increase in insolvencies since last year and there has been a 58% increase in court actions this year that involve construction companies.
The latest Credit Watch report says construction has the highest arrears of any industry and this is seriously affecting 12.94% of companies -- where, according to Civil Contractors Federation (CCF) national chief executive Chris Melham, “civil contractors are at breaking point because of soaring materials and fuel prices”.
He says the situation among civil contractors is the worst he’s seen “in the modern era” -- this at a time when Early trade’s chief executive Guy Saxelby says major public infrastructure activity will rise to $52b by next year. This, he says, represents a “tsunami of projects” subject to threats, not only from fuel price increases but from by supply chain concerns, increasing costs of materials, insurance and increasing competition for skilled workers.
No sense in being fuelish
Alright, so that’s a dreadful pun, but if you’re worried by how much you’re paying for fuel it’s foolish to drive around on deflated tyres, or with an unused roof rack or storage pod on your vehicle.
Is yours an average Australians household that’s expected to spend $1100 more on petrol and diesel this year than last year?
According to motoring websites, driving on deflated tyres can increase your fuel bill by 2%, with an empty roof rack increasing that by another 2%, but a bike on the roof rack of a vehicle adds 15% to the cost of its fuel.
An empty storage pod increases fuel cost by 25%, but with a tent in it another 5% is added to that cost.
Record petrol prices have been driven upward by unprecedented volatility in the global oil price during Russia’s invasion of Ukraine and by other geopolitical tensions.
ACAPMA is an organisation representing Australian service stations, and its CEO Mark McKenzie told the media as this article was being written that we appeared to be entering a period of “some stability” with petrol prices. But he added: “How long this will last is anyone’s guess”.
About the same time Bjornar Tonhaugen of Rystad Energy was unequivocally pessimistic about fuel prices when he told CNN: “It’s too soon to be talking about stability in oil prices. What we’re seeing now is merely the quiet before a storm.”