For simultaneous enthusiasts of politics and finance, tonight marks the biggest and most exciting night of the year – the Federal Budget. Every year, the government gives us a look at its books, projections for the year ahead, and of course, outlines new spending and savings programs. Since this year is also an election year, we're also bound to see some measures designed to make a splash in the minds of voters.
Given the normal machinations of the political world, we already have a fair idea of what some of these measures are likely to include. So let's look at one in particular that has been bandied about, and what it could mean for ASX shares.
According to reporting in the Australian Financial Review (AFR) this week, tonight's budget is likely to include a "reduction in the fuel excise for at least six months". Reportedly, Treasurer Josh Frydenberg has "confirmed" that the Morrison government will be the first government to cut fuel excise since the Howard government froze it back in 2001.
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Fuel excise?
This is a move that is likely to have an impact on most Australians, given how many of us still have to fill up at least one car. But what would this mean for ASX shares? Well, let's start by examining what fuel excise actually is.
So an excise is a specific kind of tax levied on a particular good. The government places excise on a number of products in the economy, including alcohol, tobacco and fuel. These excise duties are increased every six months in line with inflation.
In the case of fuel, all petroleum-based fuels face excise duty. Although there are different rates for aviation fuel, gas and kerosene, the rate that most of us pay today is at 44.2 cents per litre. This is the rate that applies to both petrol and diesel.
So whenever you fill up your car, you are paying 44.2 cents per litre to the government in excise tax.
Given the recent surge in oil prices, fuel has become an area of concern to many Australians. Previously unthinkable fuel prices over $2 per litre are now common across the country. This is probably why the government is reportedly considering a temporary cut to fuel excise in tonight's budget.
Which ASX shares would benefit from lower petrol prices?
So if the government gives motorists a cut to fuel excise, it theoretically should lower the cost of fuel at the bowser. This will obviously benefit anyone who drives a car or truck. But which ASX shares would it be good for?
Well, one obvious ASX share beneficiary would be Ampol Ltd (ASX: ALD). Ampol runs the self-branded network of service stations around the country. It also owns one of the country's last remaining oil refineries. Since Ampol makes most of its money on the margins of fuel, it would arguably stand to benefit from a cut in excise, since it would be able to lower fuel prices without taking a hit to its bottom line. That could explain why the Ampol share price is up more than 4% over the past five trading days.
But any other company that runs extensive road transport logistics would also likely benefit from any cut to fuel excise. Businesses like Woolworths Group Ltd (ASX: WOW), Coles Group Ltd (ASX: COL) and Wesfarmers Ltd (ASX: WES) all have extensive logistics, supply and delivery networks that run on road transport. Thus, any reduction in fuel prices would also give these companies a boost. You could say the same for other physical retailers, such as JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN).
So if the government does indeed deliver a reduction in fuel excise, there are more than a few ASX shares that would stand to benefit. But we shall have to wait and see what Mr Frydenberg does pull out of the hat tonight to be sure.
