The Government argues consumers will benefit from a modest saving on the price of fresh milk when the levy ends.

The levy was established by the Howard Government in 2000 to fund an adjustment package for the dairy industry as it moved through deregulation.

Around $240 million a year has been collected through the levy, to provide payments to around 13,000 dairy businesses over eight years.

"The Rudd Government knows every little bit counts when it comes to the household budget," Agriculture Minister Tony Burke said.

"While this measure is expected to result in a small saving, we know that increased demand and drought have forced milk prices up in recent years.

"We expect the removal of the levy to be passed on to consumers.

"Any complaint or suggestion of anti-competitive conduct over the removal of the levy will be dealt with by the Australian Competition and Consumer Commission."

The levy funded a number of measures to help dairy farmers adjust to the removal of state and Commonwealth Government price support measures.

It is collected by dairy processing companies and appropriated into a trust fund, which is administered according to statutory obligations and a statutory funding agreement between Dairy Australia Ltd and the Commonwealth.

It is expected that the levy would be removed early in 2009, once the fund is brought into balance as per statutory requirements.