Electric cars will leave massive Budget black hole

Australian motorists paid $19.68 billion in fuel excise tax in the 2019 financial year, but the forecast growth of electric cars creates the potential for a budgetary black hole. With the Electric Vehicle Council predicting 50 per cent of new cars sold in 2035 will be electric, EVC CEO Behyad Jafari says governments will need to reform the way that revenue used for roads is collected. From The New Daily:

That challenge is not the move to EV in itself, rather the multibillion-dollar black hole that it threatens to create.

Consider these figures: In the 2019 financial year, Australian motorists paid $19.68 billion in fuel excise tax, pouring into government coffers at 40.9 cents a litre…

The Electric Vehicle Council estimates 50 per cent of new vehicles sold in Australia will be electric by 2035, “even on a business-as-usual basis”.

“The underlying factors driving a transition to electric are irresistible,” EV Council chief executive Behyad Jafari said.

“If we’re already on the path to this destination, why not march there?”

Assuming that to be the case, the nation is inevitably looking at fewer fossil-fuel-driven vehicles on our roads, and that is going to mean a widening revenue hole caused by the erosion of the fuel excise tax.

As Mr Jafari points out: “There’s no doubt a mass transition to electric vehicles will require long-term reform in the way governments collect revenue for roads.”

Too right. The shift to both more efficient conventional vehicles as well as electric vehicles will cause fuel excise receipts to collapse:

This means policy makers will have to move to some sort of direct road user pricing.

Thankfully, The economic arguments for shifting to direct road user charges in place of fuel excise are sound.

First, if road user charges vary by location, time of day and distance travelled, they would encourage people to take non-essential trips at a different time, or not at all, thus improving efficiency through better managing congestion.

Second, the ability to observe road users’ willingness to pay for road space will give better signals to transport authorities of where additional road capacity should be built.

Finally, with an effective road charging scheme in effect, there would be less need to regulate to prevent sprawl, and people would be freer to make trade-offs between housing cost and location.

That said, the politics is fraught and pricing needs to be implemented equitably so that it doesn’t overly punish poorer workers in the outer-suburbs, where public transport options are limited.

Easier said than done.

Leith van Onselen

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