Cost and impact of reinstatement of fuel excise
In March 2022, the Federal Government cut the fuel excise (a flat sales tax on petrol and diesel) by 50 per cent to ease financial pressures experienced by motorists. However, this reduction in the fuel excise ends on SeptemberSept, adding around 25c a litre to the cost of fuel.
Your Financial Wellness estimates the annual fuel cost of a motorist to be $2,700 per car each year, based on the average petrol consumption and distance travelled by the average motorist. For an average household, the estimate is $4,595 per year.
More importantly, YFW estimate that the impact of the change will on average add $370 per motorist per annum or $620 per household per annum to.
YFW has analysed the impact of fuel prices on households and is concerned that the increase in the petrol excise will have a significant impact on those who can least afford it, reducing the Financial Wellness of vulnerable sectors of the economy.
To help reduce the impact of the price rises, YFW has uncovered strategies that motorists can put in place to reduce petrol prices. These strategies are outlined below. YFW have also developed a calculator that estimates the savings when driving for discounts and determines how much motorists could save depending on how far is travelled.
How does the increase in petrol prices impact the financial wellness of motorists?
Fuel prices are important to consumers, particularly those who rely on their car for their employment or family responsibilities and those unable to utilise public transport.
YFW research shows that the lowest income group spends three times as much of their income on transport costs than average. This group also reports a low financial wellness score (as measured by the UNSW validated YFW Index) and a greater likelihood of financial stress. As with most economic changes the impacts are not evenly spread.
YFW also analysed the financial wellness scores against the proportion of income spent on transport. It is evident from the analysis that when expenditure on transport is over 10 per cent of income wellness scores are significantly lower than average. Households that spend over 10 per cent of their income on transport are also more likely to be financially stressed. Findings indicate that 42 per cent of this group are financially stressed. This figure is nearly double the average level financial stress among Australians households.
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Strategies that can save money when filling up the tank
In Australia, the price of fuel differs geographically. It is influenced by factors such as the cost of import and shipping, the fuel excise, operating costs such as marketing and administration as well as retail costs and margin implemented by the petrol station operator. The costs often vary significantly irrespective of the international fuel price due to local factors. The most important outcome from this strategy is the price cycle, which is referred to below:
(1) The petrol cycle – monitor closely
The most important strategy for motorists to consider when seeking to reduce the costs of fuel is to monitor the petrol cycle and purchase during the low cost in the cycle. The Australian Competition and Consumer Commission (ACCC) publishes data on petrol price cycles in major Australian cities every week and track the low and high points in the movement of the retail price. Buying tips and charts are published based on historical data and suggest the cheapest and most expensive days to purchase fuel.
On average the price varies by over 35c a litre during the cycle. If motorists bought at the low point of each cycle annual savings of around $255 per car and $435 per household are possible. This would not fully offset the excise increase but reduces the impact significantly. This is a simple and cost effective strategy at reducing fuel budgets.
(2) Utilise price monitoring websites and mobile apps to find the cheapest petrol in your area
Websites such as Petrol Spy and the NSW Government’s Fuel Check allow users to type in their suburb, select the type of fuel they require (for example E10) and look at an interactive map or list of all the petrol stations in that area and the price of petrol at these locations.
Prices often vary by up to 45c a litre in some metropolitan regions so an annual average savings can be similar to that of using the petrol price cycle.
(3) Vouchers and discounts are not very effective ways of saving on fuel prices. Discounts of 4c saves only around $50 per motorist and $90 per household per annum.
Your Financial Wellness have also developed a simple tool for users to estimate the benefit of driving various distances to purchase discounted fuel, considering the price, petrol consumption and distance travelled. At times driving for discounts can be counterproductive, although modest savings are possible.
(4) Avoid purchasing premium fuels if your vehicle does not require it
The ACCC publishes quarterly reports on petrol sales and has found the price difference between regular unleaded and premium fuels has been growing, with premium fuels such as PULP 95 becoming more profitable for the industry.
The NRMA has warned motorists that fuelling an engine with 95 or 98 petrol will not necessarily improve the performance or fuel efficiency of the vehicle unless the engine is designed specifically to run on those premium fuels, therefore motorists should be mindful of whether they need to opt for a premium fuel or can choose the more economical option of regular unleaded petrol.
Annual savings here could be in the range of $200 per motorist or $350 per household, but we caution that the relationship between fuel and engine types is complex.
(5) Drive more economically
Driving patterns have a significant impact on petrol consumption. It is recognised that you can conservatively save 15% on fuel consumption by improving your driving style.
This strategy will save motorists $400 and households $680 per annum a major saving. Of course the more aggressive your current driving style, the more you can save.
Finally, consider the “petrol price myth busting” below.
Monitoring the petrol cycle so you can purchase fuel while it is cheaper is likely to save you more money than utilising grocery store discounts or trying to meet a minimum spend in-store to receive discounts. It is also better value for money to purchase snacks and confectionary in a supermarket (particularly when on sale!) than purchasing these same items at a petrol station, even if there is a promise of a per litre saving.
Petrol price myth busting
1. It is not more expensive to buy petrol before a public holiday or long weekend, according to ACCC analysis, and any price increases are typically no larger than standard price cycle increases that occur throughout the year.
2. There is little advantage to spending $5 on non-fuel items in the petrol station to save 4c a litre, and you will almost always end up spending more on your total transaction than had you paid the non-discounted rate to fill up your tank.
3. Petrol stations do not make large profits on every tank of petrol or diesel filled up. The margin on non-fuel purchases (such as snacks and drinks purchased in store) is significantly higher than the margin on fuel, so when thinking about the household budget, try to buy these items in a supermarket as it is usually much more economical.
YFW endeavours to make motorists aware of the ways they can save on fuel costs, and by doing so improve their personal Financial Wellness.