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Posted: 2022-03-14 04:21:48

Petrol prices have a wonderful ability to annoy people even when they are not buying fuel.

The trouble is, you can't miss them. Drive past any service station and there they are, up in lights, screaming their price to the world.

Russia's invasion of Ukraine in many ways has poured fuel onto an already burning fire of petrol prices.

The result is a political bin fire that the Prime Minister is frantically trying to extinguish before it becomes an inferno that could wipe out his government. 

For politicians, there's no credit in low petrol prices, but a whole lot of pain when they're high.

The recent hikes mean service stations are offering daily reminders to people, already dealing with inflation, that the cost to simply survive in Australia is becoming more expensive by the day. 

It is why it must be tempting for Scott Morrison and his treasurer on the eve of a pre-election budget to slash a tax on every litre of fuel sold in the country.

The gamble is that if they do it, it is unclear if it will even bring with it the political gain you would want from stripping billions in revenue from the nation's coffers.

A photo of a sign at a petrol station showing diesel at $2.29 a litre
Petrol and diesel prices have soared since Russia invaded Ukraine.(ABC Capricornia: Rachel McGhee)

The $19 billion question

Known as the fuel excise, Australians pay a little over 44 cents on every litre of petrol and diesel. It generates the government more than $19 billion a year, according to the mid-year budget papers.

After other fuel rebates are paid, the excise nets the government around $11 billion - a figure tipped to grow further in the coming years.

The excise is very much in the sights of Coalition backbenchers, particularly those with large farming consistencies, who are calling on their own government to cut or temporarily halve the excise.

State Liberal premiers have also written to Josh Frydenberg calling for action.

In economic terms, petrol prices are an "inelastic cost", which essentially means drivers can do little to escape rising prices if they rely on their vehicle.

That is especially the case in areas where public transport is lacking, or in industries with a heavy reliance on fuel. 

A man with balding grey hairs sits at a desk
John Howard froze indexation on the fuel excise in 2001.(ABC News: Tony Ibrahim)

History repeating itself

Seasoned political observers could be forgiven for thinking Australia was going through a period of history repeating itself. 

With petrol prices skyrocketing, rumblings of a by-election in the Melbourne electorate of Aston and a Prime Minister struggling in the polls ahead of an election, there is a lot of 2001 in 2022.

That campaign, like the one Australia is approaching this year, had a PM in John Howard desperate for a "khaki campaign" with a focus on national security.

Howard's Liberals held onto Aston despite a swing against it that almost handed the seat to Labor. 

Today, that seat is held by former Cabinet minister Alan Tudge, who has faced an uncertain future in recent months following an allegation of physical and emotional abuse from a former staffer with whom he had an affair.

He has repeatedly denied the abuse allegation but has gone to the backbench as he seeks re-election.

To cut or not to cut

Howard and his treasurer, Peter Costello, temporarily froze the fuel excise at a time when the nation was coming to terms with the GST and with the price of fuel ticking over $1.

Now we call that the good old days. 

It would take 13 years for indexation to be applied back on fuel in a budget that proved politically toxic for then-PM Tony Abbott and his treasurer Joe Hockey.

Should Morrison make the cut, it sets in motion a ticking multi-billion time bomb with which whoever wins the next election will be forced to contend.

Drivers might pay marginally less for fuel, but it will blow a hole in the side of the budget.

There's a political upside in this for the Coalition; Morrison could get short-term credit for cutting prices, while also leaving a problem for Labor to solve if it wins the election.

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Calls for Scott Morrison to cut petrol excise in budget

The trouble with cutting the excise, even if just temporarily, is it will likely take months for that to take effect - potentially not until after the election, and therefore stripping any electoral benefit for the government.

The Prime Minister on Monday would not forecast what he and Frydenberg would do in the budget, but repeatedly said he was "very aware" of the rising cost of living.

Sources in the government say there needs to be a strong signal to voters that they are not just aware,  but that they are actually doing something to make life a little easier. 

Cutting the excise would also risk creating issues on Morrison's own side of politics, where some are already pushing for post-pandemic budget repair amid record debt and deficits.

Howard cut the excise, held Aston and won the election. 

There is a lot of Howard in Morrison. He's holding onto Aston and we will know in a few weeks what he is doing with the excise.

Whether he can win the election is anyone's guess.

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