From your morning commute to your Friday night wind-down, excise tax is a hidden cost lurking in everyday Australian life. As the government updates rates and policies for 2025, understanding how excise tax works—and where it hits hardest—can help you make smarter spending decisions.
What Is Excise Tax and Where Does It Apply?
Excise tax is a federal tax levied on specific goods produced or manufactured in Australia, most notably fuel, alcohol, and tobacco. Unlike GST, which applies broadly, excise targets products that are either seen as luxury or have significant social and health impacts.
- Petrol and Diesel: Every litre of fuel includes an excise component, updated twice yearly.
- Alcohol: Spirits, beer, and ready-to-drink beverages (RTDs) are taxed by alcohol content, while wine is subject to a separate Wine Equalisation Tax (WET).
- Tobacco: Excise is charged per stick or by weight, driving up the cost of cigarettes and loose-leaf tobacco.
In 2025, excise remains a cornerstone of the federal budget, with the Australian Taxation Office (ATO) collecting billions annually to fund public services.
2025 Policy Updates: What’s Changed?
Several key changes have taken effect in 2025, reflecting both inflation adjustments and policy-driven shifts. Here’s what stands out:
- Fuel Excise: As of February 2025, the fuel excise rate is indexed to the Consumer Price Index (CPI) and now sits at 49.2 cents per litre for petrol and diesel. This is up from 47.7 cents in 2024, reflecting ongoing CPI-driven increases.
- Alcohol: The excise rate for spirits has climbed to $101.50 per litre of pure alcohol. Beer excise varies by strength and packaging, with full-strength draught beer now taxed at $57.80 per litre of alcohol, and packaged beer at higher rates. The WET remains at 29% of the wholesale value, but small producers benefit from the $350,000 rebate cap introduced in 2024.
- Tobacco: In line with the government’s ongoing anti-smoking campaign, tobacco excise increased by 5% on 1 January 2025, on top of CPI indexation. A 25-pack of cigarettes now includes over $20 in excise alone.
These changes are part of broader efforts to align tax policy with public health and environmental goals—discouraging smoking and excessive drinking, while also funding infrastructure through fuel excise.
How Excise Tax Impacts Australians in 2025
With inflation still a headline issue, excise tax changes have a direct effect on household budgets and business costs. Here’s how:
- Rising Fuel Prices: The higher excise rate translates directly to more expensive trips to the bowser, especially as global oil prices remain volatile. For regional Australians, who rely on private transport, the impact is even more pronounced.
- Alcohol and Socialising: Bar tabs and bottle shop receipts continue to climb, particularly for spirits and RTDs. Brewers and distillers are passing on increased costs to consumers, while smaller winemakers leverage WET rebates to stay competitive.
- Tobacco: The government’s tax strategy aims to deter smoking, but for those who continue, cigarettes are now a major weekly expense. A typical smoker could be paying over $100 a week in excise-loaded tobacco products.
It’s not just consumers feeling the pinch. Small brewers, regional fuel retailers, and hospitality venues all juggle the flow-on effects of higher excise rates, often resulting in price hikes or margin squeezes.
Looking Forward: Excise Tax in a Changing Economy
Excise tax is a policy lever—used not just for revenue, but to influence behaviour and fund big-ticket projects. In 2025, there’s growing debate about its future:
- Electric Vehicles (EVs): As more Australians switch to EVs, the government faces declining fuel excise revenue. Trials of road user charges and alternative tax models are underway in several states, signalling future reforms.
- Public Health: The steady rise in tobacco and alcohol excise is credited with helping reduce smoking and heavy drinking rates, but critics argue it disproportionately impacts low-income households.
- Inflation Pressures: Automatic CPI indexation means excise will continue rising in step with inflation—something to watch as cost-of-living debates heat up ahead of the next federal election.
As the landscape shifts, keeping an eye on excise tax trends is essential for budgeting, investing, and understanding the true cost of everyday goods.
