Why we should tax electric vehicles

The Victorian Government has followed the example of the South Australia Government and announced the imposition of an electric vehicle (EV) road tax from July next year.

The tax, which was announced by Treasurer Tim Pallas over the weekend, will impose the tax of 2.5c a kilometre for full EVs, and 2 cents a kilometre for plug in hybrid vehicles. This means that an EV travelling 20,000 kilometres a year would be slugged around $500 annually, or $400 for a plug in hybrid.

The tax has received strong push back from some quarters. These include The Australia Institute, which emailed the following:

A new tax on electric vehicles has been announced by the South Australian and Victorian governments and the NSW government has said it will follow suit next year.

A new electric vehicle tax makes no sense and we need your help right now, to help stop this great big new tax on not polluting in its tracks.

So far, it’s only South Australia, Victoria and NSW who are proposing this tax on zero emissions cars. But if we don’t stop it right now, other state governments will follow, and this could be enough to destroy Australia’s nascent electric vehicles market.

Australia needs more electric vehicles on the road, not less.

The Electric Vehicle Council is livid:

Behyad Jafari, CEO of the Electric Vehicle Council, described the announcement as “shameful” and said he had repeatedly tried to obtain meetings with the Victoria government without success…

“I can’t begin to express how strange and disappointing this is from state governments,” Jafari said in a Tweet. “Having made no move to incentivise electric vehicles, they have waived the white flag on electrification and decarbonisation for a few measly bucks…

“No other nation on Earth has thought it sensible to apply a special new tax to electric vehicles. It makes no sense to keep burning foreign oil that clogs our air with pollution. Why would we slow the transition to cleaner and healthier air by imposing a new and unnecessary tax?“…

The EV industry accepts that a road user charge is inevitable as the car fleets transition to electric, but argue it should be introduced fairly and evenly.

As are The Greens:

“This is a lazy tax that squibs the wider reform of replacing fuel excise with road user charges,” transport spokesperson Sam Hibbins said in a statement.

“Placing a standalone tax on electric vehicles without wider reform will act as a disincentive for cleaner air and lower emissions.”

However, Infrastructure Partnerships Australia supports the move:

Adrian Dwyer, the chief executive of Infrastructure Partnerships Australia (IPA), a think tank that has called for road user charges for electric vehicles, said the tax would help ensure roads were paid for as more people transitioned away from petrol- and diesel-powered vehicles.

Currently, roughly 42c per litre on petrol and diesel fuel goes to the Federal Government.

“Right now we raise about $11 billion per year through fuel excise, and that’s in terminal decline with the greater fuel efficiency of vehicles,” he said.

“As those dollars go, the money’s going to need to come from somewhere to pay for roads.”

Mr Dwyer also rejected the idea the new tax would push people away from electric cars.

“I think it’s pretty clear that if someone’s buying a $180,000 Tesla, they’re not going to be disincentivised by a couple of hundred bucks a year on road user charges,” he said.

“That would just be demonstrably untrue.”

As does Australian Automobile Association managing director, Michael Bradley, who wants the EV tax to go national:

“The technological shifts we’re seeing in the car market are good for consumers and the environment, but they are also going to significantly undermine the federal budget and its reliance on fuel excise revenue to fund transport projects” …

“The federal government must step in and ensure tax changes are nationally consistent, equitable, and progressed in a manner that does not disincentivise technological transition.”

Mr Bradley said 80 per cent of respondents to an AAA survey this month had agreed owners of electric vehicles should contribute towards the costs of roads in some way.

Here’s the problem. Australian motorists paid $19.68 billion in fuel excise tax in the 2019 financial year. But with the Electric Vehicle Council predicting 50% of new cars sold in 2035 will be electric, Australia’s governments are facing a budgetary black hole:

This is because 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 to cover costs, as has occurred above with Victoria’s EV tax announcement.

The 2c a kilometre charge on EVs is still a bargain compared to the 42c per litre paid by conventional motorists using petrol and diesel vehicles. These conventional motorists will still contribute far more towards road cost recovery than their EV counterparts.

However, the EV charge represents a stop gap only and there needs to be a full shift towards direct road user charges.

The EV industry should be careful what it wishes for. Because if direct road user pricing came into effect that fully recovered the cost of road provision, then EVs would likely pay far more than 2c a kilometre.

Unconventional Economist
Latest posts by Unconventional Economist (see all)


    • Yep, Adrian O’Dwyer has been pushing for this for ages. It’s astonishing that anyone is listening to him.

      • Privacy? What’s that got to do with it?
        I’m sure you guys do the same as we do in NZ and already have to buy Road User Charge ‘miles’ for diesel vehicles? When the miles are used up (a sticker on the windscreen is the current allocation) another has to be bought to allow the vehicle onto the roads and the mileage has to be declared reach year when the vehicles is re-registered for road use.
        Sure, you can ‘forget’ to buy them, but they have to be up to date if you want to sell the vehicle ( and for the annual Warrant of Fitness that we also have to get).
        That all looks pretty anonymous to me!

        • Afraid not Janet- we’re not as advanced as NZ- for diesel the charge is paid at the pump, some operators can then claim a rebate on their tax return. Stickers would be an upgrade for us!

        • Of course we don’t, and it’s all but guaranteed that any attempt to implement a “user pays” system would involve putting a GPS tracker into every car, which would be followed about an hour later by a proposal for automated speeding fines.

    • TheLambKingMEMBER

      Yep. This is a Clean air tax. If they are going to introduce a usage charge then they should introduce it for ALL vehicles.

      Australia needs to de-carbonise the transport industry. This will not help.

      I am not sure about what the political motives behind it are? Which vested interest is pushing this? As it is no co-incidence that 3 States are now trying to introduce this. We have no car industry or oil industry to speak of that will benefit from this? What am I missing? Whos is pushing for this?

        • Uh-oh,
          that becomes very interesting as most modern ICE cars are becoming so efficient the running cost benefit of an EV is already in tatters and if the EV is coal charged, the CO2 footprint becomes nowhere near where it was intended to be.
          If we project ICE engines efficiency advancement into the next 50yrs in the same manor as projections of the battery capacity, plugin EV will need to pay for most of the pollution fees by then.

    • What about tires – everyone uses those and their wear is obviously directly related to use? (If your hard on tires, maybe you could get a little help)

      • call me ArtieMEMBER

        It’s an idea with a certain elegance. Everyone uses tyres. Hard drivers use them faster, heavy 4WD monstrosities use them faster and use more expensive tyres. Etcetera

        However, any disincentive for people to buy quality new tyres when required would have an obvious downside.

        Another elegant idea I have argued for for years is that registration fees should be based on GVM. Big heavy tanks cost more to register than small cars. Big heavy tanks use more resources to manufacture, take more space on the road, use more consumables, endanger other road users disproportionately, etc etc

        • Tyres tax is flawed as everyone will move for thos eplastic tyres that last 60000+ km and panelbeaters will be happiest, particualry woth the first rain. Emergency and trauma hospitals will not.
          Making a US origin ute and common smaller japs/Korean is about the same pollution as the difference is only the iron used and not by much. GVM is also flawed.
          Whichever way you look at it is flawed.
          TAC/CTP fee is also flawed as someone whom owns 3 vehicles cannot drive all of them at the same time. It should be license based, not registration, if we want less flawed system.
          Point: we can only devise the least flawed system, never a just one. Perhaps a calculation based on multiple areas contributing towards the fee structure that would be personalised and private enough.

          • Registration is just a licence with a different name, its not attached to the driver, its attached to the car….

    • Excise is Federal, RUC is a state tax.

      It’s just a tax grab for the states. Funding roads has nothing to do with it.

  1. TheLambKingMEMBER

    Isn’t there already a 10% GST on electricity bills? How is that different to a fuel excise? Why do they need to add another tax?

    • Not if you have solar & batteries.
      Then again, that setup is a huge financial burden to use as a GST end-run.

  2. Talk about blowing up a mouse with an ICBM… Of the 5 million registered vehicles in Victoria, less than 0.1% are EVs..

      • The really stupid thing is its regressively. Cheaper (and smaller) EVs, which are where the growth will be, are taxed proportionately more than the very expensive ones.

      • Come on, the people that buy EVs are that price sensitive?
        What if BMW whacked on an idiot tax, would that stop people buying them? Lol.

        • The people who have bought them aren’t price sensitive the but the much greater cohort of people who want to buy them but can’t afford them are very price sensitive.

          That’s why Adrian Dwyer’s comment quoted in the article about “a few hundred bucks” are annoying. Taxes like this just help cement EVs as an elites product.

          • Anyone that price sensitive is buying 2nd hand cars 5-10 years old and keeping them for a long time. EV’s will be a very poor choice for that as the batteries wear out and need replacing for more than the car is worth.

  3. I always LOL at the Tesla buyers who boast about saving money on fuel, especially in Australia where electricity is very expensive unless you have your own solar. Now let’s talk about depreciation… To be fair some do (e.g., “How I spent $140k on a Tesla to save $3000/year on petrol”) but he compares the running costs of his Tesla to his previous $135k Benz!

    I still haven’t see a breakdown yet that shows how it makes sense financially to buy electric cars. It makes even less sense given how efficient Toyota’s new hybrids are around town, and you don’t have to worry about range anxiety for the occasional long trip.

    • Does it make financial sense to buy any car other than the base model of the size of the car you need?

      • This. 99% of cars, ICE, EV or otherwise are depreciating assets. Everything above the cheapest thing available to meet your need is driven by non financial decisions. That’s okay but people really need to stop lying to themselves about the true intent. If you did the NPV calcs on a car, you probably would not buy one.

        People make emotional decisions with logical reasons

  4. They are not selling it right. The charge should be applied when charging up your vehicle, not using the roads.
    The infrastructure and additional power needed will need to come from somewhere and not everyone is going to be off grid.

    • That cannot be enforced if you’re charging your car with a solar panel.

      Road usage is the best way to collect the duty, the problem is privacy.

      • I’m sure Tesla’s track your driving anyway ( so much for privacy) it’s basically a modern iPhone with wheels.

          • Interesting enough in my monthly statement from Google supposedly I had been followed up to Perisher Valley this August but there are no records whatsoever of me skiing at Olympic Run or any other slopes in Perisher ski resort.

      • Road usage is the best way to collect the duty, the problem is privacy.

        You don’t need a vehicle tracking system to do this well enough. A simple requirement to record the odometer when renewing registration, and a suitable per-km amount charged, would be fine.

        But any usage charging system will be regressive.

  5. The 2c a kilometre charge on EVs is still a bargain compared to the 42c per litre paid by conventional motorists using petrol and diesel vehicles.

    This isn’t right. At 2.5c/km for full EVs, that’s the equivalent of a ICE vehicle that has a fuel consumption of about 6 litres per 100km. That’s about the same stated combined cycle fuel consumption for the latest BMW 330i and more than a Lexus hybrid – both cars costing a lot more than, say, a Nissan Leaf.

    Fuel excise is a fuel usage tax, not a road usage tax.

  6. EV problem is lots of folks who are pro-EV live in the inner city with no off street parking.

    The Internal Combustion Engine has that problem solved with the fuel tank and the service station network.

    Eventually it will become easier but in 2020/2021 I wouldn’t be able to switch to a tesla as we couldn’t charge it on the street.

  7. James GrayMEMBER

    How many EV drivers also own a petrol/diesel backup for long trips ?
    How much energy/carbon do EV’s take to make ?
    If EVs are so good, they should not need expensive government subsidy. What is the plan for all the lithium batteries once they pass their use by date ? Can they be recycled?
    Unless EVs are taxed, this will end up like solar panels where the rich benefit and the poor pay for the infrastructure.

    • About 95% of batteries are meant to be recyclable at present, and this will improve. It will be a big growth industry in the U.S. and Europe. As car batteries degrade, they will still make useful home storage options in the future when they are able to be re purposed. I.e. A 100kw Tesla Model S battery, even if it degrades 50% after 20 years, would still be large enough to take an average family home off the grid with a solar panel setup during a cloudy winter.
      EV’s don’t get any expensive subsidies in Australia. ACT has some reduced tax (i.e. no stamp duty), but that is definitely not a subsidy.

    • Yes, they cant be recycled, they get repurposed a lot as well… Actually already recycled more than ICE engines.

      As for Solar panels benefiting the rich at the expense of the poor… I have no idea how you come to that conclusion. The Owner buys the panels and gets paid for the power they produce. People who dont have power dont get charged extra because a rich person has solar panels.
      Solar installations get certificates that are used to buy credits in the system to help offset the carbon footprint but they dont result in any extra cost to the consumers. The Certs are given to the retailer who sells them to the generators. Any extra cost on the fossil generators is offset by the extra non fossil generation so in the end its only the fossil generators who are slugged with anything.

      • He’s regurgitating Rich Uncle Rupert’s Rhetoric, it’s best ignored. The point of this sort of blather is to disrupt any useful or productive conversation.

        (The argument is that solar panels benefit the wealthy because only the wealthy can install and benefit from them. The poors rent and/or live in apartments.)

        • James GrayMEMBER

          It is a poor argument to merely associate me with a disliked character. You have not put any form of response. People who lack solar panels subsidise the poles and wires. If you can show me what percentage of poor people get solar subsidies or payment i d be interested.

          • It is a poor argument to merely associate me with a disliked character.

            So are red herrings and non-sequiturs, but here you are.

  8. I would be happy for a road user charge to be implemented as a fair way to attribute road costs to road users. It needs to be put on ALL cars regardless of engine type.
    I think the timing of this policy is horrible. While the rest of the world is transitioning to EV’s at a breakneck speed, Australia is making the transition harder. We already have a federal government that ran an ill informed and blatantly wrong fear campaign against EVs last election, so for a liberal party in S.A. the party of ‘lower taxes’ to introduce a new tax during a recession on a superior technology is hopelessly short sighted.

    The UK plans to ban ICE car sales by 2030, and the rumour is the EU may even consider banning them by 2025. The UK is the important one for us as it is a RHD market. If the UK and EU no longer has ICE cars, Australia won’t be getting any new ICE cars after 2025 unless the Japanese keep supplying us.

  9. The Scrotum will not have our weekends jepordised by this new fangled EV chimera.
    He has a cunning plan.
    Australia will become a Fossil Fueled theme park.
    When the rest of he world is 100% EV in a decades time Tourists will still be able to come down under and have a rev in a V8 or old Harley, visit a functioning Coal power station, drive thru a Coal Seam Gas field
    What else could we expect from the man who for the pittance of $180,000,000 bought us the “WHERE THE BLOODY HELL ARE YA ?” advertising campaign just before mysteriously leaving his position as head of Tourism Australia with a year to go on his contract ?

    • Display NameMEMBER

      The IPA are funding a ground breaking coal fired car. Clean coal of course. 0-100 …. sometimes

    • “When the rest of he world is 100% EV in a decades time…”

      I hope you understand how minuscule this is on the grand scale of pollution.
      Those tourist will either have to sail to Aus on a James Cook style HMS or will have to travel Kon-Tiki
      The way the modern ICE are evolving, the cost of plugin EV running mantra is already eroded beyond recovery and there’s huge space for improvement in terms of overall carbon footprint.

  10. From one of the EV forums today. They are all in melt down.

    “ Inspired by the ev tax, I’ve been thinking about setting up a get up page to propose a tax on non smokers. They contribute less tax than smokers and should be contributing more to the general upkeep of our society.
    It could be called the “Fresh air tax”. It could be based on a pack a day smoker, for every cigarette you don’t smoke you have to pay 25c.
    Good idea?”

  11. Raging giantMEMBER

    Nah, it’s a stupid and lazy tax. If you want to put a tax on road usage, do it by weight because more weight means more damage and more repairs.

  12. So, my golf uses about 6l/100k typically. so I pay 6x 42c of road tax per 100km. That’s $2.52. That will be exactly how much road tax I’d pay if I bought an EV now.

    And a golf size EV is probably 20k more expensive at the moment. And then I’ve got to pay tax on that 20 as I earn it. So if I buy an EV i’ll be paying significantly more tax than someone driving a ICE car.

    Perhaps the per K charge is a good idea with funding and the likes.. but this isn’t going to help with the adoption of EV’s, and we need to encourage people to do the right thing if we want to make the climate targets.

  13. Way too early to be taxing EV’s which are going to deliver enormous benefits to the environment and general amenity.
    Introduce a new tax that is applicable to ALL vehicles, meaning EV’s are not unfairly targeted.
    Leave the current Petrol excise tax.
    This will encourage the uptake of EVs and hasten the demise of noisy, polluting ICE’s.

    • On the contrary, its an ideal time to tax EVs in this way because it’s set low and applies to the very few. Gets people used to the idea. If they wait 10 years, its politically much harder to bring in a new tax on EVs and by then the revenue hole will be that much bigger. This way … in a few years the young things will think it’s always been done this way ….

    • MathenomicMEMBER

      Last I looked EVs in Australia were more carbon intense than ICEs based on (1) Australia’s electricity grid and (2) total lifetime servicing and input costs; haven’t even talked about the issue with batteries.

      • Seriously doubt you looked very hard. A mate of mine has a Model 3, He has spent less recharging it since he ought it 12 months ago than I paid for my last service on the hilux.. Sure if you charge off the grid the carbon footprint is higher but the amount of emissions generated to drive a Kilometre on electric is a 3rd of the best ICE systems when on fossil generated. and a large amount if not the the majority of Australia’s energy is renewables during the daytime now.

          • PalimpsestMEMBER

            Shrugs indeed. A bit hard to look into it for some obviously. Let’s try just a little thought – not a full assessment – let’s just look at two things.
            1. Every major EV charging vendor (e.g. ChargeFox) uses green electricity.

            2. Even if an EV was charged with fully Coal generated electricity it would still put off about one third the carbon of an ICE engine – because of the efficiency of single point large scale generation vs the inefficiency of individual small scale ICE engines. If you don’t get it, try and imagine lots of little engines with their tappets and cylinders and cam shaft chains creating lots of overhead. Think of lots of little engines each generating heat. Each failing to recapture energy when they slow down – it goes into brake pads. That’s why a fleet of EV’s, even if all the energy came from coal, would have a significant drop in emissions.

            There’s more of course, but then you’ve looked haven’t you.

      • TheLambKingMEMBER

        Last I looked EVs in Australia were more carbon intense than ICEs based on (1) Australia’s electricity grid and (2) total lifetime servicing and input costs; haven’t even talked about the issue with batteries.

        No. Complete rubbish. It is not even close. ICE use almost as much power producing petrol to drive 1km as it does for an EV to drive 1km. And then the ICE has to burn that petrol. Oil refining is one of the most ‘electricity’ intensive processes on the planet. The fossil fuel ‘studies’ all conveniently ‘forget’ to include the CO2 use to extract, transport and refine, transport to pump the petrol before it gets into the car. They think petrol gets into a car by magic so never include it.

      • ignoratio elenchiMEMBER

        Once again, I’ve done some math here. From the source that you provided, it appears that electricity generation in Victoria is around 85% coal. It appears that to generate 1 kWh of electricity from coal you will emit around 1000gms of C02. If we assume that the other 15% is renewable then we are looking at 850gms of C02 for 1 kWh.

        The Tesla Model S weighs 2100 Kg and uses around 18 kWh/100km – this equates to 15.3Kg of C02/100km, and because I like to make my comparisons meaningful that means that is 153Gms /km or 72.8Gms/km/Tonne.
        The Prius I-tech weighs 1375kg and uses around 3.4l/100km – this equates to 80gms/km or 58.2Gms/tonne/km.

        So we have a dirty grid in Victoria and perhaps an unfair comparison between a Tesla model S 4 door sedan and an economical hatch. A MB E450 is102.9gms/tonne/km, a MB E200 is 87gms/tonne/km. If we compare the Prius to a Nissan Leaf, which uses 17.1kwh/100km and weighs 1594kg then the leaf is 91gms/tonne/km. The leaf is worse than the Prius using the Victorian grid, however the Tesla is better than a Mercedes.

        If you use Solar or renewables, then the electric cars clearly emit less carbon.

  14. So presumably there will also be a special tax applied to ICE cars that have above average efficiency? Good for the goose and all…

  15. The EV industry should be careful what it wishes for. Because if direct road user pricing came into effect that fully recovered the cost of road provision, then EVs would likely pay far more than 2c a kilometre.

    If road user charging came into effect that properly reflected the cost of wear and tear / maintenance (arguably what vehicles should be taxed on – “provisioning” rolled into rates/stamp duty/land tax/etc), then nearly all of it would be born by heavy vehicles like trucks and buses.

    Taxing EVs is an immensely stupid idea, which is obviously why it’s going to happen in Australia.

    The real justification here needs to be why a specific vehicle tax should exist at all, be it collected through fuel excise or anything else.

    • ignoratio elenchiMEMBER

      I was going to say that he had lost my vote and the math did not add up, but now I have done the math, it appears to add up.

      My previous car was a diesel that weighed 1700kg and used 8.5l/100km over its lifetime. Fuel excise is $0.423 per litre, so I was paying $3.59 per 100 km or 2.115 cents/tonne/km.

      My plug-in Hybrid uses electricity for the first 40km/charge and then around 7l/100km on the highway. I expect that the majority of trips will be on electric however the majority of km will be on the highway. We will do about 200km of town driving and around 800km of trips in a month. This will put the blended average at 5.6l/100km or 1.3 cents/tonne/km.

      And so we get this in the right units, the new charge is 2cents/km or 1.1 cents/tonne/km. When you add that 1.3 cents to the 1.1, you get 2.4 cents/tonne/km. That’s the equivalent of a 10l/100km car – which is a V6 Commodore, or a 4 door ute.

      It has been helpful doing the math however. If my lifetime fuel usage in the new car is less than 4.2l/100km then I come out even. That means that I have to do 40% of my kms on electricity.

      Tesla model S owners will be paying around 1.18 cents / tonne – which is equivalent to the fuel excise paid by a Prius I-tech.

      • Hardly anyone will do the maths.

        Some will remember/consider the tax embedded in petrol prices.

        Everyone, however, will know there is a specific tax aimed at EVs, and that is where the disincentive will come from.