The fiscal tools they didn’t use
The UK introduced a windfall tax on oil and gas companies the same month the RBA began raising rates. The EU deployed a solidarity contribution levy on fossil fuel sector profits. France capped household energy prices. Australia halved fuel excise for six months and then restored it. No windfall tax on energy companies. No bank excess profits levy. No price caps. A$14.9 billion in annual fossil fuel subsidies: maintained. The full burden of stabilisation went to the RBA. The borrowers paid.
On 3 May 2022, the Reserve Bank of Australia raised the cash rate for the first time in over a decade. Three days later, on 26 May 2022, the United Kingdom government introduced the Energy Profits Levy.
These two events happened simultaneously, in response to the same supply shock: the Ukraine war energy price spike. Both countries faced supply-driven inflation requiring a policy response. Australia chose to use only monetary policy. The UK deployed both monetary and fiscal instruments.
What follows is a comparison of what was available and what was used.
The UK deployed fiscal tools alongside monetary policy. Australia used monetary policy alone.
What the UK did
The UK’s Energy Profits Levy was a 25 per cent surcharge on oil and gas company profits above a threshold. It was introduced in May 2022, increased to 35 per cent in January 2023, and extended multiple times. It raised approximately GBP 10 billion.
The UK simultaneously maintained a bank surcharge — an additional 3 percentage point levy on bank profits above the corporation tax rate — throughout the rate cycle. This meant that as UK banks benefited from the same NIM expansion documented in Article 5 for Australian banks, the UK government was capturing a portion of those excess profits in tax.
The UK also raised interest rates. It did not replace monetary policy with fiscal tools. It deployed fiscal tools alongside monetary policy to share the stabilisation burden.
What the EU did
The European Union’s Regulation 2022/1854 introduced a solidarity contribution on fossil fuel sector companies. The levy applied to profits more than 20 per cent above the average of the preceding four years. Revenue was directed to member states for household energy bill relief.
France went further, implementing a tariff shield that capped household gas and electricity prices from late 2021 through 2023. The caps prevented the full Ukraine war energy price spike from reaching French households. France’s effective household inflation rate was therefore lower than unprotected markets. The cost to the French government was approximately EUR 45 billion. France thus protected households and raised interest rates less aggressively.
Spain capped energy prices. Germany subsidised household energy bills. The Netherlands introduced a windfall tax on the energy sector. Italy introduced a solidarity contribution on energy companies.
What Australia did
Australia’s primary supply-side fiscal intervention in the 2022–23 inflation episode was a six-month halving of fuel excise. This reduced petrol prices by approximately 22 cents per litre from 30 March to 28 September 2022. It cost approximately A$3 billion in foregone revenue. When the excise was restored on 28 September 2022, prices rose.
That is the main entry on the list.
Windfall tax on oil and gas companies: not introduced. These companies were selling LNG and coal at Ukraine war-elevated prices into international markets while Australian households faced higher domestic energy bills.
Windfall levy on bank profits: not introduced. The big four earned A$32.5 billion combined in FY23 as documented in Article 5.
Price caps on essential goods: not introduced. The ACCC found supermarket margin expansion; the government committed to future transparency legislation.
Fossil fuel subsidies: maintained at A$14.9 billion annually. Including A$9.5 billion in fuel tax credits to mining and agricultural companies.
The combination: the government was simultaneously maintaining A$14.9 billion in annual subsidies to fossil fuel industries whose export prices were driving the LNG component of Australia’s energy costs — while doing nothing to capture the windfalls those companies were earning from the same price spikes.
Why the comparison matters
The Grattan Institute and other analysts have documented that the combination of targeted fiscal intervention and monetary policy is more efficient at reducing inflation than monetary policy alone. Each fiscal dollar directed at the specific cause of supply-side inflation reduces the required monetary tightening.
If Australia had introduced a windfall tax on energy companies in May 2022, equivalent in scale to the UK levy, it would have raised several billion dollars. That revenue could have funded: targeted energy bill relief for low-income households; a larger and longer fuel excise cut; targeted grocery vouchers for food relief.
Each of these interventions would have directly reduced the consumer price level — reducing the RBA’s required interest rate response. The borrower who paid an extra A$1,210 per month for two years might have paid an extra A$900 per month for eighteen months. The superannuation of the workers who bore the adjustment cost would have accumulated more.
The reason these tools were not deployed is documented in Article 7.
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References & Sources
- [1] UK — Energy Profits Levy documentation.https://www.gov.uk/government/collections/energy-security-investment-mechanism— UK Energy Profits Levy introduced May 2022. Initial rate: 25% surcharge. Extended to 35%. Estimated revenue: GBP 10+ billion. UK also maintained bank surcharge at 3% above corporation tax rate.
- [2] EU — Solidarity Contribution Regulation 20221854.https://eur-lex.europa.eu/ — Temporary solidarity contribution on fossil fuel sector. Applied to profits more than 20% above the average of preceding four years. Revenue recycled to household energy bills.
- [3] Australia — fuel excise halving March–September 2022.https://www.accc.gov.au/by-industry/petrol-and-fuel/fuel-and-petrol-monitoring— Morrison government halved fuel excise for six months. Cost: ~A$3 billion. When excise restored, prices rose.
- [4] Australia Institute — fossil fuel subsidies A$14.9 billion.https://australiainstitute.org.au/report/fossil-fuel-subsidies-in-australia-2025/— Fossil fuel subsidies 2024–25: A$14.9 billion. Fuel tax credits: A$9.5+ billion. Maintained throughout the inflation episode.
- [5] ACCC — supermarkets inquiry: 20 recommendations, no structural remedy.https://nationalseniors.com.au/news/latest-news/surprises-in-supermarket-pricing-report— No price controls. No divestiture powers. A$2.9 million for supplier education.
- [6] Treasury Budget FY22–23 surplus.https://budget.gov.au/— Australia returned to budget surplus FY22–23 (approx A$22 billion). Targeted supply-side intervention was available but not deployed.
- [7] Australia Institute — windfall tax argument for commodity exporters.https://australiainstitute.org.au/— A windfall tax on excess profits would have raised revenue without further suppressing household demand.
- [8] Senate Economics Committee — bank windfall levy argument rejected.https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics— Green and crossbench senators proposed a temporary windfall levy. Labor government senators did not support this.
- [9] Grattan Institute — fiscal tools for supply-side inflation.https://grattan.edu.au/— The combination of supply-side fiscal tools and monetary policy achieves the same inflation reduction with less distributional harm.
- [10] ACCC legal action against Coles and Woolworths.https://australiainstitute.org.au/post/accc-suing-supermarkets-as-price-gouging-drives-inflation-rate-hikes/— Addressed deceptive pricing practices rather than the structural oligopoly conditions.
- [11] US — Inflation Reduction Act and pharmaceutical price negotiation.https://www.congress.gov/bill/117th-congress/house-bill/5376— Allowed Medicare to negotiate drug prices. Demonstrated fiscal policy can directly target supply-side inflation drivers.
- [12] France — temporary energy price caps.https://www.economie.gouv.fr/— France implemented tariff shield energy price caps. Cost: approximately EUR 45 billion. Prevented the full Ukraine war energy price spike from reaching households.
- [13] Australia Institute — what other OECD countries did with windfall taxes.https://australiainstitute.org.au/— Multiple OECD countries introduced windfall taxes: UK, Italy, Germany, Spain, Netherlands. Australia: no windfall tax despite being a major LNG and coal exporter.
- [14] RBA — what fiscal policy could have done.https://www.rba.gov.au/— Governor Lowe repeatedly noted fiscal policy should contribute to demand management and inflation reduction.
- [15] Australia Institute — combination approach advantages.https://australiainstitute.org.au/post/accc-suing-supermarkets-as-price-gouging-drives-inflation-rate-hikes/— Each supply-side fiscal intervention reduces the inflation rate directly, reducing the RBA’s required response.