Drivers will pay more at the bowser after Labor and the Coalition struck a deal to increase the tax on fuel.

The deal means fuel excise will increase twice a year, in February and August, in line with the consumer price index.

Labor shifted its position its position on Tuesday, offering to vote for the Coalition’s budget measure to increase fuel excise, despite railing against the proposal for more than a year.

In a proposed compromise approved by the shadow cabinet on Monday evening – and accepted by the Coalition – Labor will back the government’s proposal to end the freeze on fuel excise indexation if the Coalition agrees to earmark $1.1bn for regional road projects.

The budget benefit from the fuel excise measure is estimated to be worth a cumulative $23bn by 2025-26.

The deputy prime minister Warren Truss, treasurer Joe Hockey and finance minister Mathias Cormann said in a joint statement: “This major boost to local road construction and maintenance reflects the importance the Australian government places on building the infrastructure future of Australia.”

Labor sought to justify its new position by saying the government would have had to refund the money it had already collected to the big oil companies if the Senate struck down the legislation.



About $105m was expected to be collected in the 2014-15 financial year, according to Parliamentary Budget Office estimates, in a sign of the revenue that would potentially have to be refunded if there was no deal.

In the May 2014 budget, the Coalition announced its decision to increase fuel tax in line with the consumer price index (CPI) twice a year, ending the freeze introduced by the Howard government in the early 2000s.

But the Coalition could not get the legislation through the Senate so it announced a revised plan in October 2014 to begin the policy in November 2014 via a tariff proposal that would have to be validated by the parliament within a year. This effectively dared Labor and the Greens to vote against the measure and be held responsible for the return of already collected funds to the big oil companies.

At the time the opposition leader, Bill Shorten, described the government’s manoeuvre to bypass parliament as an ambush and “a sneak attack on the motorists of Australia”. Labor has repeatedly criticised the government’s “fuel tax” on the basis that it was a broken promise.

But Shorten said on Tuesday Labor had offered to back the measure because it had been presented with a “Hobson’s choice” and did not want to see Australians’ money being handed to oil companies.



He said it was a “difficult decision” but one that was reasonable and pragmatic.



“In a beauty parade between giving money to oil companies and putting money back into Australian roads, generating jobs and confidence, it’s clear which way Labor has to go,” Shorten said.

“[Australians] want less of Liberal versus Labor on every issue and the politics of negativity ... Labor is willing to show leadership. We are willing to compromise because we understand that the price of not compromising would have left all Australians far worse off than they otherwise would [be].”

Labor’s infrastructure spokesman, Anthony Albanese, said $1.1bn should be channelled into the Roads to Recovery program because the scheme provided funds to local councils.

The biggest beneficiaries would be regional and outer-suburban communities, he said, describing them as “drive-in, drive-out suburbs” where people paid more for fuel.

“We looked at other options. The difficulty with the proposal of channelling this money into public transport, for example, is that it is difficult to see how you could benefit the whole of Australia by funding just one or two projects,” Albanese said.



“The benefit of roads to recovery, as opposed to major infrastructure projects, is that it is labour intensive rather than capital intensive. Most of this injection of investment, $1.1bn, will go to job creation, directly into local communities.”



The shadow treasurer, Chris Bowen, told reporters at Parliament House that the budget deficit had doubled in the last 12 months so “everybody in this building needs to make difficult decisions”.

Bowen said some people would be unhappy about the decision to support the fuel excise indexation but the public wanted the government and the alternative government to show a responsible approach.



There had been widespread expectations that the government would reach a fuel excise deal with the Greens, who had wanted extra funding for public transport or compensation for lower income earners who would be adversely affected by the increase.



“It appears that that opportunity has been lost now that Labor has caved,” a Greens source said.

Last week the Greens reached an agreement with the Coalition to pass changes to part-pensions. Shorten did not directly answer a question about whether the fuel excise offer was motivated by Labor’s desire to gazump the Greens after the pension deal.

Shorten said: “The Greens’ deal last week, what did they actually get? They got the extension of a submissions deadline [on the tax white paper] for six weeks. That’s not a deal. That’s a con job by Tony Abbott.”



The opposition leader left the door open to keep the part-pension changes in place if Labor won the next election, saying the party would monitor the impact of the changes “and as time proceeds we will develop our policy for the next election”.

The pension changes are not due to take effect until January 2017 – after the next election is due.



Shorten declined to commit to restoring $80bn that the government cut from projected health and education funding over the next decade, which the Coalition has challenged Labor to do.

He said Labor would unveil its policies before the election but it still believed in needs-based school funding and “we are always a better bet based upon our history to better fund healthcare and education than the government”.





