The looming electrification of road transport is something that motorists, fleet managers, bus operators, logistics companies, transport agencies, automotive manufacturers, and all levels of governments are grappling with.
Wednesday saw a landmark case showing just how precarious it can be with a major setback for the Victorian government and any other states thinking of introducing road user taxes for electric vehicles.
Two EV drivers from Victoria argued that being taxed by their state’s government was at odds with Australia’s constitution because it didn’t have the remit to collect excise taxes on the consumption of goods. This not only looks likely to stymie such taxes being collected in Victoria but will put the brakes on other states and territories following suit. There also looks to be some major ramifications for other state-based taxes and whether collecting these are outside their constitutional remit.
What are EV road user taxes and how would they work?
Road user taxes were first mooted by the Victorian government in 2021. Since then, others have announced they would follow suit (albeit not immediately with some proposed to start in a few years’ time or when a certain percentage of new sales are electric).
The basic concept for such a charge is that for each kilometre driven in an electric or plug in hybrid vehicle, drivers face a fee which they must pay each year. These charges are not huge on the face of it. For fully electric vehicles, the charge would be 2.8c per kilometre and 2.3c for plug in hybrids.
For the typical motorist in Victoria who drives an average 12,400km a year, this would amount to a charge of just under $350 annually. The intention is that these charges will cover the cost of revenue lost from the fall in fuel excise duty raised from the sale of petrol and diesel.
A brief history on fuel excise duty
Fuel excise duty for Australian motorists was first introduced in 1929 as a fixed charge per gallon of petrol sold. This was brought in as a neat way to charge motorists a fair amount based on how much they drove and benefited from roads.
Fuel tax in Australia is now charged at 48.8c a litre and raised $13.7bn in the previous financial year for the Australian government. However, since 1992 fuel tax has been a general revenue-raising tax without direct links to the amount the Commonwealth makes available for funding roads. When every single one of Australia’s 20 million vehicles is electric (which is decades away) and based on the current charge, it would only return $7bn a year. This implies the charge would need to eventually double if this funding gap is to be replaced.
Why is an EV road tax not right?
Taxes are an important part of helping any modern society function by funding important things like transport systems, welfare and social services, schools, and healthcare. However, road taxes implemented in this way and targeting EV drivers is not good for consumers nor the country’s targets for decarbonising transport.
The EV market is still in its infancy and needs help not hindrance to gain share from more polluting fossil fuel vehicles. Transport is now the third worst emitter of carbon but is set to become the largest source by 2030. EVs are now making up just 8% of new car sales but the EV Council says that 50% of vehicles rolling off forecourts need to be electric by this time if we are to have any chance of meeting our climate targets.
The inconsistent approaches by states and territories has the potential to confuse future EV buyers. They may want to do the right thing but hear that incentives are being introduced by state governments with one hand, but then charges implemented with another. This could put off those considering to replace their current vehicle with an electric one, resulting in another internal combustion engine vehicle sale and its associated emissions for the next 15-20 years.
EVs are still expensive compared with comparable fossil fuel models and there is a lack of cheaper models and a nonexistent affordable secondhand market. A few hundred dollars a year in EV road tax may not mean much to wealthier drivers but it will eventually matter to more price sensitive ones. Those in regional and remote areas who must drive further and are likely to need to use faster more expensive chargers while on the move will again be disproportionately affected.
What next?
Uncertainty over charges could put off those thinking to decarbonise their private mode of transport, stall the EV market, and dissuade automotive OEMs from bringing their models to the Australian market in favour of countries where incentives for EVs rule over disincentives.
It could also be an opportunity to start a conversation again on a fairer way our transport infrastructure should be funded. Something more coherent and jurisdiction wide that can also deliver a transport system that is more sustainable and healthier for the country as a whole.
Whether for cars or bikes, trains or buses, the sooner we adopt the sun as our fuel for transport the better.
• Dr Scott Dwyer is a research director at the Institute for Sustainable Futures, University of Technology Sydney. He works on issues relating to the transitioning energy system with a focus on customers and innovation
• This article was amended on 19 October 2023 to remove the assertion that an appeal against the high court judgment is possible.
