A big change happens from midnight, potentially saving you hundreds. But there is a big catch with this plan. Here’s why.

The federal government has officially announced that it will halve fuel excise duties starting at midnight tonight in a bid to deal with soaring gasoline prices.

The excise duty on fuel is currently 44.2 cents per litre. This price will be reduced to 22.1 cents per liter for a period of six months, which goes well beyond the impending election in May. But don’t expect the price drop to immediately impact the bowser.

In his evening budget speech, Treasurer Josh Frydenberg said the measure was part of a “temporary, targeted and responsible cost-of-living package” designed to ease pressure from rising fuel costs. , food and shipping.

“Over the next six months Australians will save 22 cents per liter every time they fill up their cars,” Mr Frydenberg said.

“A family with two cars that they fill up once a week could save about $30 a week, or about $700 over the next six months.

“Whether you’re dropping the kids off at school, driving to work, or visiting family and friends, it will cost you less.”

As the excise duty reduction takes effect at midnight on Tuesday evening, Mr Frydenberg said it will gradually trickle down to customers over the “next two weeks”.

“The competition watchdog will be watching retailers to make sure these savings are passed on,” the treasurer promised.

When prices start to fall

Mr Frydenberg’s acknowledgment that it will take time for the savings to be passed on to Australians is a key point. Don’t expect petrol to suddenly become cheaper on Wednesday, or even the next day.

Speaking ahead of the treasurer’s speech, Mark McKenzie, chief executive of leading petrol station body ACAPMA (Australasian Convenience and Petroleum Marketers Association), told news.com.au that it was crucial for Mr. Frydenberg to “manage expectations” regarding the speed of the price. to cut.

Since fuel excise is levied at the point of wholesale, there will still be “tens of millions of litres” in the system when the excise is removed at midnight. These liters were all purchased at the highest excise rate.

“That means I have to go through all the fuel already in the grid,” McKenzie said.

He estimated it could take three to seven days, depending on where you live.

“Typically, in a metropolitan area with high turnover, we are talking about three days. Outdoor metro or regional areas, five days. But in remote regional areas with smaller volumes, it may take seven days for an oil tanker to pass through,” he explained.

Mr McKenzie said it was possible some retailers would cut prices immediately to gain an edge over competitors, but it would cost them huge amounts of money.

“That’s a big amount to write off,” he noted.

He added that the competition watchdog, the Australian Competition and Consumer Commission, would “likely go into overdrive” in the next two weeks to ensure that the excise duty reduction is passed on to the car drivers.

“It will definitely happen, but the main thing is just to manage expectations,” he said.

In addition to the excise duty reduction, the government is halving the excise equivalent customs duty rate as it applies to gasoline and diesel, also for six months.

These measures are expected to reduce government revenues by $3 billion.

To illustrate their effect on households, the budget documents highlight the Long family, who fill up two cars each week, one with a 40-litre tank and the other with a 60-litre tank. This family is expected to save “up to $25 a week in excise and GST,” or “more than $600” over the next six months.

How Australia’s movement compares

Australia’s move to cut excise duties follows similar moves overseas, including in New Zealand and the UK. Britain’s policy was more modest in terms of price, lowering that country’s excise duty by five pence, while New Zealand’s excise duty reduction lasts only three months instead of six.

Earlier today, speaking at the traditional pre-budget press conference upon his arrival in Parliament, the Treasurer confirmed that an excise duty cut was imminent, although he refused to say anything about it. specify the exact magnitude.

“If you’re a family that needs your car to get to work and drop your kids off at school, if you’re a tradesman busy doing your day job, you see the higher price of gasoline and that what it does to your take home pay,” Mr. Frydenberg said.

“And so what we will seek to do in this budget is provide cost of living relief to Australians who are paying higher bowser prices.”

NRMA spokesman Peter Khoury told news.com.au that while there could be brief delays, the savings should be realized within a week.

“I think it was pretty much overnight in the UK,” he said.

Mr Khoury said there were two big problems with the government’s decision to cut the excise.

“First of all, if oil prices go back up, then obviously the 20 cents are going to be gobbled up,” he said.

“And the second is the profit margin. So it’s something the government will have to watch very closely, once it’s introduced. »

Labor is expected to support the reduction in excise duties. Speaking to the ABC Insiders On Sunday, opposition Treasury spokesman Jim Chalmers indicated his party would support the move, pending further details.

“Gasoline is a big part of the story, as everyone knows, but it’s not the only part of the story,” Chalmers said.

“We believe there is a place for cost of living assistance in the child care system. We believe there is a place for cost-of-living relief when it comes to electricity bills.

“I think the expectation is…we’re talking about some sort of temporary fuel excise reduction and we’re unlikely to oppose it.”