Federal cabinet is considering a controversial move to increase petrol excise as it searches for budget savings.



Several sources have told Guardian Australia that the tax on fuel – frozen since 2001 – has been discussed in the budget process.



But with fuel prices over $1.60 a litre in parts of the country, it would be a politically dangerous decision.



Former prime minister John Howard reduced petrol excise by 1.5 cents a litre when he was under assault over “cost of living” concerns after the introduction of the goods and services tax in 2001.



He then froze it at 38.14 cents a litre, abolishing the twice yearly automatic indexation of the tax that Labor had introduced in 1983.



It was a decision with a cost that escalated over the years, and now leaves the budget well over $5bn a year worse off.



Revenue from a fuel excise hike could be funnelled towards building new roads – which the government argues increases economic growth and national productivity and are also popular with the motorists who would be paying the increase in excise.



The executive director of the Australian Automobile Association, Andrew McKellar, said he had not had any confirmation of an excise increase and urged the government to consult properly before announcing any change.



“Motorists already pay too much tax and are not getting fair value for money for what they pay,” McKellar said.



After cabinet met on Wednesday to finalise the budget, finance minister Mathias Cormann appeared to confirm that it would include a “deficit levy” for high income earners.



Asked whether the government would impose such a levy he said there was a need for “an immediate special effort in order to put ourselves into a stronger starting position as we repair the budget”.



In a scene-setting speech in early April, treasury secretary Martin Parkinson urged the government to increase the proportion of government revenue collected from indirect taxes such as the goods and services tax or fuel excise.



He said research consistently showed that “reduced reliance on income taxes and increased reliance on other, more efficient sources of revenue, including indirect taxes, can support higher growth and higher living standards by increasing workforce participation and lifting productivity”.



He said without changes to indirect taxes such as fuel excise and the GST, Australia was heading in the opposite direction, with much more government revenue coming from personal taxation as inflation pushed more taxpayers into higher tax brackets.



But considering the idea of reintroducing fuel excise indexation, the Grattan Institute think tank said it would hit the bottom 20% of households the hardest because they spend a greater proportion of their income on fuel.



As Guardian Australia reported, the government was also seriously considering changes to the rebate paid to farmers and miners for the off-road use of diesel, but after fierce lobbying from both sectorsit is understood to have dropped the idea.



It is, however, likely to change a $150m a year subsidy for ethanol producers which rebated them a full subsidy on the excise paid on ethanol as a transport fuel.



Excise on fuel has declined from 1.7% of gross domestic product in 2000-01 to just over 1% in 2012-13, according to a parliamentary budget office report on government revenue trends published last month.



• On 8 May 2014, the photo on this article was replaced. A previous version showed a driver filling up with LPG.