Economists warn that the price of gasoline may decrease due to tailgating.

Motorists will pay up to 26.3 cents on every liter of fuel they buy for three months, but some economists warn it could ultimately leave Australians worse off.

Treasurer Jim Chalmers today marked the government’s decision to temporarily cut fuel tax to ease the cost of living, predicting it will reduce the cost of a 65 liter tank by $19.

But economists say the low price is likely to boost fuel consumption, which the government has so far blamed on a lack of local service stations, and could increase the likelihood of another profit hike.

“It may be good politics, for others to judge, but it is not good economics,” independent economist Saul Eslake said.

The fuel surcharge is a flat tax applied to every liter of petrol or diesel bought from the bowser, which is currently set at 52.6 cents a litre. That means drivers should save 26.3 cents in the price of a litre, if the reduction is passed on to consumers in full.

“We are making fuel cheaper today because we understand that Australians are under a lot of pressure,” Prime Minister Anthony Albanese said today.

“However, we also want to encourage Australians to be able to take public transport, to help save fuel for regions and industries that need it.”

Because many drivers have no choice about how much they spend on petrol in a given week, Mr Eslake said higher fuel prices have the same effect on inflation as rising interest rates, as Australians have less money to spend elsewhere.

Reducing the share of taxes means that the government is “neutral”, he said.

With inflation now higher than the Reserve Bank’s target, more money in the economy increases the likelihood of a tripling this year.

The price of fuel was finally halved in six months in 2022, as Russia’s invasion of Ukraine disrupted energy supply chains and sent world prices soaring.

In that time, a “substantial” 24.3-cents-a-litre saving has been passed on to motorists over a six-week period due to the way fuel is priced, according to the Australian Competition and Consumer Commission.

Immediately after he announced the tax cut, the Prime Minister presented the measure on social media as the government keeps “your money when you fill up”.

Economist Chris Richardson says it appears the government has not learned the lessons of the Ukraine war, which he said at the time “gave us a lot of money and that kind of keeps inflation going”.

“They’re going back to that playbook … Families will understand that, they’ll love it, but they probably won’t realize that it comes with a twist,” he said.

“And that slap in the tail is going to be like the end time: it’s going to keep inflation higher for a longer period of time than it would otherwise be.”

He also warned that the result may be that the Reserve Bank may increase the interest rate at the next meeting in May.

“Governments are starting to give more reasons to do that,” he said.

The road user fee has been reduced for truck drivers

The government has also announced that it will reduce the heavy vehicle tax to zero for three months, meaning truckers will not have to pay an extra 32.4 cents a litre.

A planned increase in the fee has also been postponed by six months.

Mr Richardson said there was a “slightly better case” for targeting the production side of the economy by removing the tariff, but that it “doesn’t make a huge difference to the ability of Australian businesses to continue”.

The Australian Chamber of Commerce and Industry had called for the fee to be temporarily reduced to help truckers struggling with fuel prices.

Chief executive Andrew McKellar welcomed the removal of the road user charge today, saying it would help keep trucking jobs going.

“We need to make sure that we can maintain that ability to deliver food, shopping and other essential goods around the country and do it in a cost-effective and timely manner,” he said.

And he was very careful about the cutting of the oil tax, which he says is not a business problem.

“It signals that it’s okay to eat more [fuel]so it is acting a bit against the advice, which is we need to manage demand, let’s make sure that, if there is, we reduce the demand at this time,” he said.

“From an economic point of view, it’s a kind of reduction of those grains, but it’s a matter for the government to think about whether it prioritizes the issues of the cost of living for individuals and families.”

Government funding is due in more than six weeks, and Mr Chalmers said toll cuts and road user fees are expected to cost the government about $2.55 billion, depending on the level of demand in the coming months.

Delaying the proposed increase in the road user fee would cost about $53 million in lost revenue, he said.

“This is timely. This is targeted. This is a responsible contribution to the cost of living to help people through difficult times,” Mr. Chalmers said.

“It’s all about reducing the rate of these high gas prices, which are putting incredible pressure on household budgets across the country.”

The Coalition has previously proposed that fuel tax and road user charges be halved for three months, while suggesting that other policies could be changed to cover the costs.

Fuel demand is estimated to be moderately affected by the tax cut, with consumption expected to increase by 1 to 2 percent or not more than one day’s supply in the country’s stockpile.

Mr Richardson said the government’s lack of balance with spending elsewhere was the “missing link”.

“I fully understand why the government is doing this because the punters feel they are being helped,” he said.

“Chances are they’re not being helped, it looks like they’re being helped.”

Opposition Leader Angus Taylor said the tax cut was “a well-timed relief that will take pressure off living costs and keep supply chains running ahead of Easter”.

“Australian families and small businesses will pay less for petrol because the Coalition led and the government followed,” he said in a statement.

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