Several articles have already gone over the myth that fuel excise tax (FET) “pays for our roads” and that EV drivers are somehow getting a free ride.
It was disappointing that even the Treasurer was happy to use this line. To reiterate, FET goes directly into general revenue, although about 5.5% has been “hypothecated” to road infrastructure since 2014 – about A$1 billion each year.
Excise taxes are routinely used by governments to primarily raise revenue, and also to dissuade people from using certain products, notably cigarettes and alcohol.
Income goes into general revenue and is rarely if ever earmarked for specific programs to target the harms caused by those products.
A search of Energy.gov.au, the Parliamentary Budget office (PBO) and Minister Bowen’s department (DCCEEW) reveals some interesting facts.
Between 2014 and 2024, the volume of automotive gasoline sold in Australia declined by 10.3%, consistent with the improvement in overall fleet efficiency despite an increase in number of cars on the road.
To be clear, EVs are still less than 2% of the fleet and any effect on this is less than a rounding error.
The volume of diesel sold over this same period increased by 27 .5%, meaning that overall fuel sales increased by 12% between 2014 and 2024.
Since the FET is applied “at the terminal gate”, the amount collected also increased. The extra fuel sold and burned is also partly reflected in the 6% increase in transport emissions between 2014 and 2024.
So what’s going on with the FET?
PBO figures for 2021 show that A$18.8 billion was collected at the terminal gate from FET, including some from aviation etc not included in this analysis.
At this point the fuel tax credit (FTC) scheme kicks in. According to the PBO, these FTC payments are treated as a budget expense, not a reduction in revenue.
Despite the PBO making it very clear that the FET and road infrastructure funding have been decoupled for over 30 years, 32% of the fuel sold was for off road applications and was therefore eligible for a refund of the entire FET, 42.5 cents/litre in 2021. The FET in 2025 is 50.8 cents/litre.
Another 17% used by heavy on road vehicles was eligible for a partial refund of 16.7 cents/litre in 2021, now 32.4 cents/litre in 2025.
More on how bogglingly silly this is later.
To be clear, the government paid back A$7 .476 billion in FTCs out of A$18.8 billion raised from FET in 2021. Mining collected A$3.397 billion, with coal mining getting A$1.033 billion.
We subsidise miners to use diesel to dig up coal??
Non road diesel engines including excavators, haul trucks etc are the largest source of unregulated air pollution in Australia. Their fleet is 33 times smaller than the on road diesel fleet but it accounts for 6% of Australia’s greenhouse gas emissions.
The cream on the cake is that their emissions are completely unregulated by any legislation, although government has flagged this as a significant problem.
To return to heavy on road vehicles, the logic here is that the full FTC refund isn’t applied because part of it is considered as a Road User Charge (which still goes into general revenue, not to roads).
This means that those heavy vehicles which cause nearly all the damage to our roads are doing so with fuel subsidised by the government, at 32.4 cents/litre in 2025.
The remaining 51% of fuel by volume is mainly used by private citizens and attracts the full FET with no FTC, raising A$9.6 billion (vs the A$7 .746 billion handed back by FTCs) in 2021.
However this amount raised is nowhere near the A$36 billion spent that year on transport infrastructure, further demonstrating the decoupling of FET and Federal road funding.
The States and Territories actually raise more revenue than net FET through vehicle registration and licensing.
There is however a growing gap between general expenditure raised from transport and expenditure on transport infrastructure. Perhaps it’s time for a consideration of a universal Road User Charge based on vehicle mass and distancetravelled, applicable to all vehicles from mopeds to heavy trucks regardless of fuel type.
This would truly be a “user pays” model without the economic distortions of the current FET/FTC debacle.
The current system sets up some perverse incentives, with selective treatment and no incentives to reduce fossil fuel consumption for off road users.
It is a matter of choice that government continues to offer the greatest fuel cost refund to the mining sector where burning that fuel has the greatest detrimental effect on the environment.
Australia’s fossil fuel consumption is still climbing, even if it is mainly driven by the mining sector. Our transport emissions are also still rising, likely to be by 2% in 2025, based on figures to March.
The population health effects can be measured but the resultant costs are not effectively considered in this argument.
Depending on the type of modelling, traffic related air pollution results in between 1800 and 8000 deaths every year. The lower figure is 500 more than our appalling road toll and the upper figure is close to the toll from our deadliest tumour, lung cancer.
Add in considerable morbidity, particularly paediatric asthma/respiratory disease and you have a huge financial cost from healthcare and years of life lost.
Electrifying transport is the way out of this mess. EVs will need to pay their way, but so should the polluters.
I get the feeling that this would be much simpler if we still had a carbon pricing policy.