The high court has decided Victoria’s electric vehicles tax is invalid in a ruling the New South Wales premier, Chris Minns, labelled a “surprise” and the Victorian treasurer, Tim Pallas, described as “very contentious”.
Not only has it put a stop to road-user charges in Victoria, it is likely to halt plans to do the same in NSW and Western Australia. It could also spark constitutional challenges to everything from gaming taxes and car registration payments to waste levies.
So what caused the ruling, and why has it got states and territories in a panic?
What was the issue?
Victoria introduced a distance-based charge for drivers of zero-emission and low-emission vehicles. The law charges electric and hydrogen vehicle owners 2.8c for each kilometre they travel during the year, and plug-in hybrid vehicle owners 2.3c for each kilometre. Hybrid vehicles were exempt. The tax was designed to recoup lost revenue from EV drivers, who do not pay the petrol excise.
Two electric car drivers filed a challenge in the high court arguing that this was unconstitutional because the states do not have the power to impose such excise taxes on the consumption of goods.
What did the court decide?
Four justices of the high court – the chief justice, Susan Kiefel, and justices Stephen Gageler, Jacqueline Gleeson, and Jayne Jagot – agreed that the Victorian EV charge was invalid.
The judges in the majority reopened and overruled the 1974 decision of Dickenson’s Arcade Pty Ltd v Tasmania, which held that a tax on the consumption of goods does not constitute a duty of excise.
The court concluded that a prohibited state excise was a tax closely related to the production or manufacture, sale, distribution or consumption of goods, which could affect its manufacture or production.
In the Victorian case, the EV charge was found to be a tax on goods because there is a close relationship between the tax and the use of EVs, and the tax affects demand for EVs.
Did everyone agree?
No, three of the seven judges dissented in judgments that were highly critical.
Justice Michelle Gordon accused the majority of an “abandonment of past authority”, citing cases “which held that particular taxes on goods were not a duty of excise” that “must now be wrong”.
Justice James Edelman said that “without any empirical or economic evidence” the majority had concluded that a tax of between $260 and $330 was “reasonably anticipated to have a real and substantial economic effect in the market for the sale of goods worth up to $300,000 each”.
Edelman said that “flaws in the assumptions” about the impact of the tax on consumption “call into question the authority of today’s decision”.
Could it affect other taxes?
Minns told NSW parliament that the previous Perrottet government had flagged the pending high court decision as “a key risk” to charges that “generated not just hundreds of millions of dollars, but billions of dollars”.
Edelman said there was now “serious doubt” over whether states can levy taxes on gifts or inheritance, payroll taxes on companies producing goods, industrial land taxes, licences to carry on a business manufacturing goods, taxes on carrying goods, or on the “ownership, possession, use, or destruction of goods”.
Gordon noted that Victoria had argued that other charges could be challenged on the same basis including “duties on the transfer or conveyance of goods … motor vehicle duties and vehicle registration charges, commercial passenger vehicle levies, gaming machine levies and ‘point of consumption’ betting taxes and waste disposal levies”.
There was some disagreement between the judges on this point.
Kiefel, Gageler and Gleeson accused Victoria of “tactical posturing” but said Victoria and the other states and territories “were unable, or at least unwilling, to do more than submit that some categories of … taxation might be open to challenge”.
Justice Simon Steward said it was understandable that Victoria “did not want to make any specific concessions that might inspire future attacks upon the validity of such laws”.
Are EV taxes and road charges off the agenda?
Not necessarily.
Jagot said the Victorian charge was invalid because it was “a tax, not a fee for service”. “It is not a licence or permit fee for an activity properly the subject of a regulatory scheme,” she said.
This suggests it might be possible for states to raise revenue from EVs if the charge were structured another way, such as an additional charge on car rego.
Of course, the commonwealth could still legislate a nationally consistent system for charging road users.
Many stakeholders including the Automobiles Association of Australia and the independent MP Zoe Daniel called on the federal government to do that. Earlier in September the shadow transport minister, Bridget McKenzie, said this was becoming “more necessary and more inevitable”.
The Greens have called on Labor to rule out introducing a tax on electric vehicles.
